Munich Re estimates that 2021 will be the second most costly natural catastrophe year on record for (re)insurers

Munich Re estimates that in 2021 natural disasters led to overall losses of approximately $280bn, the fourth highest on record. Hurricane Ida, the European floods and Winter Storm Uri were the most significant events. Munich Re calculates that $120bn of these losses were insured, making last year the second most expensive year on record for insurers after 2017.

Hurricane Ida was the costliest natural disaster of the year. Munch Re estimates an overall loss of $65bn and an insured loss of $36bn, but noted that had the levees and dykes failed, as they did during Hurricane Katrina, the damage to property and loss of life would have been much worse. The European floods last July are estimated to have caused $54bn of damage across Germany, the Netherlands and Belgium. Given the low level of flood cover purchased in these regions, insured losses were just $12bn. This figure, however, is four times higher than the previous largest insured flood loss in this region. Winter Storm Uri was the year’s third most costly disaster, with freezing temperatures in February across the south of the USA causing losses of $30bn, of which $15bn were insured.

Munich Re emphasised that extreme weather events are becoming more frequent, due to climate change, whilst other perils, such as volcanic eruptions and earthquakes, may be being under-estimated despite their ability to cause significant losses. The reinsurer also noted that the insurance gap (the difference between the overall loss and the insured loss) was lower this year, primarily due to a high portion of losses occurring in the USA where insurance penetration is relatively high. In developing countries, for instance, 90% of losses are thought to be uninsured.

Alpha Comment

There is no doubt that (re)insurers are suffering following a high level of natural catastrophe activity in 2021. The year saw one of the most powerful hurricanes in history to make landfall in the US, the worst natural catastrophe loss in European history and Winter Storm Uri causing damage on a scale well above any modelled losses. However, there is still a feeling that it could have been much worse given that 20 of the year’s 21 hurricanes were relatively benign from an insurance perspective, there were no significant earthquake losses and insured losses in the Asia-Pacific region were modest. The overall level of losses should, however, have empowered underwriters writing catastrophe business in North America and Europe to demand adequate pricing at the 1.1 renewals. The North Atlantic hurricane-centric renewals at 1.6 and 1.7 should present another opportunity for underwriters to recoup their losses and keep rate momentum moving, unlike last year where rate rises achieved by reinsurers were below initial expectations. It seems unlikely that, following Hurricane Ida losses, capacity, traditional and ILS related, will be as abundant as in 2021.