Presentation

Climate change –
Potential impacts on the insurance industry
Climate Change Seminar
CREDIT SUISSE
19 June 2006, London
Ernst Rauch
Head of Department
Windstorm/Weather/Climate Risks
Geo Risks Research
Munich Reinsurance Company
Climate change –
Potential impacts on the insurance industry
- Natural catastrophes: Loss statistics
Content
- Climate change: Scientific basics
- Risk modeling: Hazard, vulnerability, probability of loss
- Changing hurricane activity in the North Atlantic
- Consequences for the insurance industry
2
Natural catastrophes:
Loss statistics
3
Great Natural Disasters 1950–2005
US$ bn.
Economic and
insured losses
200
Economic losses (2005 values)
180
Insured losses (2005 values)
160
140
Trend of economic losses
120
Trend of insured losses
100
80
60
40
20
0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
© 2006 NatCatSERVICE, Geo Risks Research, Munich Re
4
Great Natural Disasters 1950–2005
Number
Number of events
16
14
Earthquake/tsunami, volcanic eruption
Storm
12
Flood
Temperature extremes (i.e. heat waves, cold waves, forest fires)
10
8
6
4
2
0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
© 2006 NatCatSERVICE, Geo Risks Research, Munich Re
5
Great Natural Disasters 1950–2005
Percentage distribution worldwide
Number of events: 267
Deaths: 1.75 Million
6%
Geologically determined events
Earthquake/tsunami,
volcanic eruption
29%
25%
2%
7%
Weather determined events
36%
55%
Storm
Floods
40%
Extreme temperatures
Economic losses: 1,700 bn. US$*
Insured losses: 340 bn. US$*
5%
6%
5%
11%
31%
25%
79%
38%
*2005 values
© 2006 Geo Risks Research, Munich Re
6
Great Natural Disasters 2005
Date
Country/Region
Event
July-August
India
Floods
1,150
5 000
August
USA
Hurricane Katrina
1,300
125,000
60,000
September
USA
Hurricane Rita
10
15,000
10,000
October
Central America. USA
Hurricane Stan
800
3,000
100
October
Pakistan. India
Earthquake
88,000
5,200
5
October
Mexico. USA
Hurricane Wilma
42
18,000
12,000
© 2006, NatCatSERVICE
Geo Risks Research, Munich Re
Fatalities
Economic
Insured
losses (US$ m)
770
7
Climate change:
Scientific basics
8
longwave
shortwave
The greenhouse effect
Natural greenhouse effect: +30...35°C
Present additional greenhouse effect: +0.5...0.9°C
(some regions >1.5°C)
9
Global mean temperature
2005: +0,47°C
second warmest
year since 1850
The last 10 years
with the exception
of 1996, are the
warmest years on
record.
10
Warmest years since 1861
Global mean air temperature near the ground
The last 10 years (1996-2005), with the exception of 1996, are the
warmest years on record.
1. 1998
2. 2005
3. 2002
4. 2003
5. 2004
6. 2001
7. 1997
8. 1995
9. 2000
10. 1999
(Source: WMO, Geneva, 2006)
11
Global Mean Temperature
IPCC-TAR 2001
temperature trends
1976 - 2000
12
Fast northern hemisphere temperature increase
over the period of industrialization …
SpörerMinimum
MaunderMinimum
DaltonMinimum
IPCC-TAR 2001
13
CO2 concentration in the atmosphere
Antarktica
(indirect
reconstructions)
CO2 concentration (ppm)
(direct measurements)
CO2 concentration (ppm)
850 - 2001
Year
Source: Schönwiese, compilation acc. to IPCC
14
CO2 concentration in the atmosphere
1957-2004
Mauna Loa,
Hawaii
15
CO2 concentration in the atmosphere
The last 400+
thousand years
Х 2005
Source: Keeling and Whorf (2000)
16
Climate simulation of the industrial age
Natural drivers
Natural and
anthropogenic
contributions
∆ T (°C)
model
observations
Anthropogenic drivers
- solar irradiance
- volcanism
model
observations
Natural and anthropogenic drivers
- greenhouse gases
- ozone (strato- & tropospheric)
model
- sulfate-particulates
observations
Switch off/Switch on of drivers:
Development of world’s climate can be
simulated solely by including anthropogenic
greenhouse gas drivers.
- all drivers
IPCC TAR 2001
17
Future Change of Global Mean Temperatures
Global mean temperatures, 2071 to 2100 compared to 1990:
global mean 2085 = +3.1oC (source: IPCC 2001)
Compare differences in
annual mean temperatures:
Frankfurt (50° N): 9,4 °C
Bologna:
13,6 °C
Tunis:
17,7 °C
18
Global temperature anomaly in
recent winter 2005/06
source: Goddard Institute for Space Studies / NASA19
Major greenhouse gases - important facts
Gas
CO2
Origin
Anthropogenic
share
Effect
Share
of
AGE*
Relative
greenhouse
potential**
Life
period
(years)
Natural sources
Fossil fuel combustion
Deforestation
25%
Greenhouse effect
50%
1
120
CH4
Moist and wet areas
Rice growing
Livestock farming
Landfill sites
70%
Greenhouse effect
13%
5
10
CFC
100%
Greenhouse effect
Ozone decomposition
24%
4,000 - 11,000
Chlorofluorocarbons
Sprays
Refrigerants
Foaming agents
O3
Natural sources
Traffic
75%
Greenhouse effect
Impairment to health
8%
2,000
days-months
Laughing
gas
Supersonic air traffic
Fossil fuel combustion
Agriculture
40%
Greenhouse effect
Smog, acid rain
Ozone decomposition
5%
260
130
CO
Fossil fuel combustion
Traffic
25%
Greenhouse effect
Smog
See CO2
1
months
Carbon
dioxide
Methane
Ozone
(tropospheric)
N2O
Carbon
monoxide
* AGE = Additional greenhouse effect
** Relative greenhouse potential per molecule in relation to CO2
50 - 500
Source: Enquête Commission, German Bundestag, 1995.
20
Increasing probabilities of extremes
Example:
Source: Climate Change Impacts UK 1996
1961-90
T = 15.3°C
Summer
temperatures in
central England
2050s
T = 16.9°C
T = 1.6°C
p = 33.3%
factor 25
p = 1.3%
12.6
14.4
16.2
16.9
17.3
1976
1826
1995
1975
1983
1
1816
1695
3
15.3°C
21
Risk modeling:
Hazard, vulnerability,
probability of loss
22
Principle of risk modeling
Hazard
Risk =
Function
Vulnerability
Exposed values
23
From hazard to risk
Hazard wind
field set
Munich Re vulnerability
function/damage sensitivity
+
Individual
portfolio/
liability data
+
Wind speed
Risk curve
Losses
“Return period”
24
From hazard to risk:
Parameters influencing the damage
Vulnerability I
Windstorm vulnerability
Loss ratio (in % of s.i.)
– Wind speed/pressure
Mobile
homes
Wood frame
Masonry
Wind speed
Loss ratio (building type A; V = 150 km/h)
– Duration, gusts
Duration of storm
25
From hazard to risk:
Introduction of loadings for non-modeled hazards
Vulnerability II
• Inland flood (and storm surge)
• Theft/looting
• Arson
• Contamination
Introduction of loadings for loss amplification
• Demand surge
• Claims inflation
• Repair-cost-delay inflation
• Coverage erosion
26
Hurricane tracks 2005
Saison 2005
27 named TCs
tropical depression
tropical storm
SS 1
SS 2
SS 3
SS 4
SS 5
© Munich Re 2005
27
Hurricane Katrina
Louisiana/Mississippi wind field
Wind Swath Source: NOAA/AOML/HRD
28
Hurricane Katrina: Loss examples
Residential storm surge damage
29
Hurricane Katrina
Loss Examples, Commercial Storm Surge Damage
Source: Munich Re
Source:
Source: Munich
Munich Re
Re
Source: Munich Re
Source: Munich Re
30
Hurricane Katrina: Loss examples
Casino barges
31
Changing hurricane activity
in the North Atlantic
32
Annual Number of Tropical Cyclones
Formed in the North Atlantic
-
Data source: NOAA, re-handling by Munich Re 2006
30
25
Tropical Storms + Hurricanes
Hurricanes (Category 1-5)
Major Hurricanes (Category 3-5)
Warm
Phase
Cold
Phase
Warm
Phase
Number of Storms
Annual Frequencies of Major
Hurricanes in Warm or Cold Phases
20
Cold
Phase
15
10
4.1/year
5
2.6/year
1.5/year
1.3/year
0
1850
1875
1900
1925
1950
1975
2000
33
Hurricane activity 2004 and 2005
Long-term means
10 named TC per season
6 with hurricane force
High values
Season 2004
15 named TCs
9 with hurricane force
Records
Season 2005
27 named TCs
(former record: 1933 – 21)
15 with hurricane force (former record: 1969 – 12)
34
Annual number of landfalls in the USA, 1851–2005
Annual Number (10-Year Moving Average)
6
5
US Landfalls Hurricanes 3-5
US Landfalls Hurricanes 1-5
US Landfalls Hurricanes & Tropical Storms
period mean Hurr. 3-5
period mean Hurr. 1-5
period mean Hurr. & Tr. Storms
5.0/year
4
3.4/year
3
2.5/year
2.3/year
1.8/year
2
1.2/year
1
1.0/year
0.6/year
0.3/year
0
1925
1935
1945
1955
1965
Year
1975
1985
1995
2005
Data source: NOAA, Unisys; re-handling by Munich Re 2005
35
Altered intensity distribution (North Atlantic)
Relative
Relativefrequency
frequency (%)
40
35
Period 1900-2005
Period 1995-2005
30
25
20
15
10
5
© Munich Re 2006
0
1
2
3
4
5
(SS class) category)
IntensityIntensity
(Saffir-Simpson
36
The strongest hurricanes in the Atlantic
Year
Name
Lowest Pressure
(hPa)
Sea area
2005
Wilma
882
Caribbean
1988
Gilbert
888
Caribbean
1935
Labor Day Hurricane
892
Florida Keys
2005
Rita
897
Gulf of Mexico
1980
Allen
899
Caribbean
2005
Katrina
902
Gulf of Mexico
1999
Mitch
905
Near Honduras
1969
Camille
905
Gulf of Mexico
2004
Ivan
910
Caribbean
1955
Janet
914
Caribbean
37
Comparison of average annual US landfall
frequencies between different climatic phases
-
Change in average annual number of landfalls
between the last cold phase (approx. 1971 to 1994) and the
current warm phase since approx. 1995:
Cat. 3–5 hurricanes:
Cat. 1–5 hurricanes:
Trop. storms & Cat. 1–5 hurricanes:
+ 233% (from 0.3 to 1.0)
+ 100% (from 1.2 to 2.4)
+ 100% (from 2.5 to 5.0)
Primarily indicative of the natural climatic oscillation.
Date: February 2006
38
Comparison of average annual US landfall
frequencies between different climatic phases
-
Change in average annual number of landfalls
between the last warm phase (approx. 1926 to 1970) and
the current warm phase since approx. 1995:
Cat. 3–5 hurricanes:
Cat. 1–5 hurricanes:
Trop. storms & Cat. 1–5 hurricanes:
+ 67% (from 0.6 to 1.0)
+ 33% (from 1.8 to 2.4)
+ 47% (from 3.4 to 5.0)
Primarily indicative of the influence of global warming.
Date: February 2006
39
Tropical Cyclone activity
in the Northwest Pacific
40
Annual Number of Tropical Cyclones with
Landfalls in Japan, 1950-2005
12
Number of TCs with landfall in Japan
10
8
6
4
2
0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
year
41
The 10 Largest Insured Losses from Typhoons in
Japan, 1950-2005
2005: Typhoon #14, 4.-7.9.2005, insured losses = US$ 600 mio
* as-if losses in 2004 values; sources: MRNatCatService,
General Insurance Association of Japan
42
Changing hazard ->
Changing risk ->
Changing loss distribution
43
Insured hurricane losses, US nationwide
1986–2005
Annual
aggregate
US$ m
100,000
10,000
1,000
100
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
19
91
90
19
19
89
88
19
19
87
19
19
86
10
Source: PCS; historical losses indexed @ 5%p.a., onshore only
Date: 22 December 2005
44
Insured hurricane losses, Florida only
1980–2005
US$ m
Per event
100,000
10,000
1,000
100
10
1
1980
1985
1990
1995
2000
2005
US$ m
Annual
aggregate
100,000
10,000
1,000
100
10
1
1980
1985
1990
1995
2000
Source: PCS; historical losses indexed @ 5%p.a., onshore only, Date: 22 December 2005
2005
45
Insured hurricane losses, Florida only
Average annual
loss for various
averaging periods
US$ m
6,000
5,000
4,000
3,000
2,000
1,000
0
1981-2005
(last 25 years)
1986-2005
(last 20 years)
1991-2005
(last 15 years)
1996-2005
(last 10 years)
2001-2005
(last 5 years)
Source: PCS; historical losses indexed @ 5%p.a., onshore only
Date: December 2005
46
Outlook:
Tropical Cyclone Season
2006 in the North Atlantic
47
Sea surface temperature anomalies in the
Atlantic 2005
End of July 05
End of August 05
End of September 05
Tropical North Atlantic by up to 2°C warmer than average
48
Sea surface temperature anomalies in the
Atlantic /Pacific as of 15 June 2006
°C
49
Forecasts for 2006:
- consensus
opinion that we are in the
middle of a potentially decades-long era with
increased hurricane frequency
- “predictions” that 2006 will bring annother
year of increased hurricane activity,
although perhaps not as intense as 2005
50
Risk of change:
Consequences for the
insurance industry
51
Portfolio losses
Example: Adjustment of loss distribution
(pml curve) as a consequence of changing risk
1
Source: Munich Re
10
100
1,000
10,000
Return period (years)
52
Options available to the insurance industry
to adapt to the changing risk
• Adjusting risk models to changing hazard situation
• Improved accumulation control (reporting of “realistic”
exposure figures)
• Improved claims handling (loss adjustment)
• Liability limits and deductibles
• Exclusion of particularly exposed areas
• Reinsurance, retrocession, ART
53
200
180
160
Thank you for your
attention!
140
120
100
Ernst Rauch
Geo Risks Research
Munich Reinsurance Company
80
60
40
20
0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
54