Cli­mate change bill hits in­sur­ance

The Weekend Australian - Travel - - Resources -

IN­SURED losses from nat­u­ral catas­tro­phes caused by cli­mate change are set to surge 37 per cent in the next decade, re­sult­ing in the need for al­ter­na­tive ways to man­age risk, ac­cord­ing to Al­lianz SE, Europe’s big­gest in­surer.

An­nual in­sured losses from catas­tro­phes such as floods and hur­ri­canes may jump to $41 bil­lion a year in 2010-2019, up from $30 bil­lion a year in 2000-2006, and less than $5 bil­lion be­fore 1989, Mu­nich-based Al­lianz said in a re­port re­leased in Syd­ney. To­tal losses in any one year may be as much as $400 bil­lion, says Cle­ment Booth, a mem­ber of the man­age­ment board.

The United Na­tions has con­cluded this year that cli­mate change is likely caused by hu­mans and will in­crease floods and droughts, change grow­ing sea­sons and harm wildlife. Lloyd’s of Lon­don Chair­man Peter Levene said in Jan­uary cli­mate change was the No 1 is­sue for the world’s big­gest in­sur­ance mar­ket be­cause of the un­pre­dictabil­ity and cost of po­ten­tial weather-re­lated claims.

‘‘ In­sured dam­ages from nat­u­ral catas­tro­phes at pro­jected fu­ture lev­els will put pres­sure on catas­tro­phe risk mar­kets,’’ Booth said in a state­ment ac­com­pa­ny­ing the re­lease of the re­port. ‘‘ The in­sur­ance in­dus­try needs to con­tinue to de­velop al­ter­na­tive ap­proaches to risk trans­fer such as catas­tro­phe bonds and risk part­ner­ships be­tween in­sur­ers and gov­ern­ments.’’

In 2005, Hur­ri­cane Ka­t­rina caused more than $41.1 bil­lion of in­sured losses in New Or­leans and along the US Gulf Coast, de­stroy­ing plat­forms, pipe­lines and re­finer­ies and flood­ing homes and build­ings. The to­tal dam­age was $170 bil­lion, four times the nextmost dev­as­tat­ing hur­ri­cane in the 50 years to 2000, Al­lianz said.

In the US, the num­ber of cat­e­gory 4 and 5 hur­ri­canes, the strong­est grades, has been in­creas­ing com­pared with less in­tense storms, Al­lianz says. The num­ber of weather-re­lated claims has risen 15-fold over the last 30 years, it says.

To­tal dam­ages from nat­u­ral catas­tro­phes may av­er­age be­tween $80 bil­lion and $120 bil­lion a year dur­ing the next decade, while losses in any par­tic­u­lar year may be triple the av­er­age and have reached al­most four times the trend av­er­age, based on past cases, Al­lianz says.

The num­ber of is­sues of catas­tro­phe bonds, sold to pro­tect against losses from nat­u­ral dis­as­ters, dou­bled last year to 20 and is­sues in the first half to this year have al­ready passed last year’s to­tal, Al­lianz says.

For in­vestors ‘‘ they give a pretty de­cent re­turn and prob­a­bly a non-cor­re­la­tional re­turn to other in­vest­ments which may be re­ly­ing on the gold price or the oil price,’’ Booth says.

Catas­tro­phe bonds re­turned 3.4 per cent in the three months to Au­gust 30, ac­cord­ing to data com­piled by Swiss Rein­sur­ance Co, while the av­er­age cor­po­rate bond de­clined 0.3 per cent in the same pe­riod, data from Mer­rill Lynch & Co show.

Al­lianz in April sold $157 mil­lion of catas­tro­phe bonds to hedge against floods in the UK and earth­quakes in Canada and the US, ex­cept Cal­i­for­nia. The mar­ket re­sponse is ‘‘ pos­i­tive,’’ with the bond over­sub­scribed about three times, Booth says. Al­lianz ex­pects to sell more catas­tro­phe bonds ‘‘ in the near fu­ture,’’ he says.

Private in­sur­ers still won’t be able to cover all the risks that will arise from a warm­ing planet and will need to link with gov­ern­ments in new al­liances such as gov­ern­ment rein­sur­ance plans to pro­vide catas­tro­phe in­sur­ance in high-risk ar­eas, Al­lianz says.

Ear­lier this month Zurich Fi­nan­cial Ser­vices AG, Switzer­land’s largest in­surer, says dam­ages claims from Bri­tain’s record sum­mer floods may cost it about $660 mil­lion be­fore tax. Bloomberg

Texas counts the cost: Last week’s Hur­ri­cane Hum­berto has cost the in­sur­ance in­dus­try $200 mil­lion in dam­ages

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