Global modelled catastrophe loss report from AIR Worldwide

The 1% aggregate exceedance probability insured loss (or the 100-year return period loss) from catastrophes worldwide is nearly $250bn, and the global insured average annual loss is about $80bn, according to catastrophe modelling firm AIR Worldwide’s 2017 Global Modeled Catastrophe Losses report. The 2017 report bases its global loss metrics on perils and regions currently modelled by AIR, including new models and updates released during 2017, as well as databases of property values for more than 100 countries. New models introduced this year include Australia severe thunderstorm, Japan inland flood, and Canada crop hail, while updated models include US earthquake, Canada earthquake, US hurricane, Australia bushfire, tropical cyclone and earthquake, Japan typhoon, and China multiple peril crop insurance. The AIR report explains that its catastrophe models provide a wide range of modelled loss output. “One of the most commonly used outputs is a distribution of potential losses with the associated probabilities of exceedance. These exceedance probability curves – which can be specific to peril, region, or line of business – quantify the risk profile for whole portfolios or individual risks and can be used to inform a variety of risk management decisions,” it states. Average annual insured losses and the metrics from the aggregate insured exceedance probability curve – for all regions and perils modelled by AIR – have increased since the first report was published in 2012. In the report, AIR notes that 2017 offers a powerful reminder that the insurance industry and other stakeholders must never be complacent. The year opened with US insurers having to deal with large losses from severe thunderstorms in Q1 and Q2. Hurricane Harvey caused record-breaking rainfall and massive flooding in Houston and was followed closely by two more major hurricanes, Irma and Maria, which ravaged the Caribbean. In addition, M8.1 and M7.1 earthquakes struck Mexico in September, causing severe damage, and the wildfire siege of California’s wine country in October caused losses greater than many thought possible, according to AIR. “After a decade of below-average losses (apart from 2011), 2017 will surely remind not just newcomers to the industry, but even those who have spent their careers assessing and managing catastrophe risk, that preparing for large losses before they occur is critical to continued solvency and resilience,” the report notes. It adds that while Asia has remained the region with the largest proportion of uninsured risk due to relatively low insurance penetration and, in some cases, nascent insurance markets, a substantial insurance gap exists in the US as well, especially in the areas of flood and earthquake. Since catastrophe risk can threaten a company’s financial wellbeing, companies operating on a world stage need to understand their risk across global exposures to ensure they have sufficient capital to survive years of very high loss, states the report. “Understanding – and owning – this risk requires knowing both the likelihood of high-loss years and the diversity of events that could produce such losses. In addition, companies with global exposures and an expanding global reach should prepare for the possibility that future catastrophes will produce losses exceeding any historical amounts,” it adds. And it points out the need to better understand the risk: “The difference between covered and eligible exposures suggests areas of potential profitable growth in markets already identified as vulnerable to catastrophic events. Examination of economic and insured losses reveals how wide the protection gap is and how sizeable losses are for societies after a catastrophe, which can inform risk mitigation, public risk financing, and emergency management to enhance global resilience and better prepare society for the ultimate costs.”

Global modelled catastrophe loss report from AIR Worldwide

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