Climate change bill hits insurance
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
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