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Jul 2020

Nat CAT Feature - APAC leads 2015 global Nat CAT losses

Source: Asia Insurance Review | Mar 2016

Messrs Steve? Bowen and Adityam Krovvidi of Impact Forecasting Asia Pacific recap the recent slew of natural catastrophes in Asia Pacific, examine the links with La Niña and El Niño occurrences and reiterate how CAT models can help. 
Global natural catastrophe losses were down across the world in 2015 on both economic and insured loss basis. Asia Pacific was no exception. The region accounted for 50% of global economic losses, which was 25% higher than the 15-year average of 40%. 
   However, Asia Pacific only represented 17% of the global insured loss total. This is due to much lower insurance penetration in many parts of the region. For comparison’s sake, the United States registered 32% of global economic losses but 60% of the insured losses.
   Economic and insured losses in Asia-Pacific were each below the 2000-2014 norm and the lowest since 2012. Despite the reduced losses, the region incurred the highest economic cost resulting from natural disasters in the world. Economic losses (US$60 billion) in 2015 were 22% below the 2000-2014 average (see Chart 1) and insured losses ($6.0 billion) were 41% lower. 
APAC Economic Losses by Peril
   However, conducting the same analyses on a median basis produced strikingly different results. This plays into how the loss averages were heavily skewed given outlier years such as 2011.
   When analysing economic losses on a median level since 2000, they were 57% higher. Insured losses were an even more substantial 70% higher than the median during the same timeframe.
Recap of events
The costliest singular event in Asia Pacific was a nearly year-long outbreak of major forest fires across Indonesia. The fires that primarily burned on the island of Sumatra and in the Kalimantan region were initially ignited by slash-and-burn tactics and spread out of control. 
   A study by the World Bank concluded that the fires had a $16.1 billion economic cost on the Indonesian economy. Elsewhere, deadly bushfires razed portions of South Australia and Victoria in December as the insurance industry incurred a $122 million and $45 million bill respectively.
The flood peril left a heavy financial toll in India, China and Japan in 2015. The most notable event occurred in November and December as an El Niño-enhanced monsoon pattern led to catastrophic flooding in southern India and Sri Lanka. The Indian state of Tamil Nadu was particularly impacted, with the greater Chennai metropolitan region sustaining historic flood damage. Updated statistics in February 2016 cited total economic costs from the event nearing $8.0 billion, though only $700 million of the losses were insured.
One of the strongest earthquakes of 2015 (M7.8) struck Nepal on 25 April and was followed by a powerful aftershock (M7.3) on 12 May. The tremors led to more than 9,100 fatalities in Nepal, India, Bangladesh and China. 
   Total combined economic damages and reconstruction costs in the affected countries were estimated at up to $8.0 billion, with most of the damage occurring in Nepal’s Kathmandu. Another strong earthquake struck near the Afghanistan and Pakistan border on 25 October. Despite occurring 212 kilometres (132 miles) below the surface, the M7.5 temblor left more than 400 people dead.
Multiple typhoons and cyclones left billions in economic damage throughout Asia Pacific. Typhoons Goni, Mujigae, Soudelor, and Chan-hom were the costliest in China, Japan, the Philippines and Taiwan. 
   Perhaps the most significant cyclonic event in the region was March’s Cyclone Pam. The storm ravaged Vanuatu, a Pacific island nation, and caused $450 million in damage. That equalled 64% of Vanuatu’s GDP.
Notable APAC Events in 2015
How catastrophe models can help
These losses highlight why catastrophe models play a critical role in understanding and managing natural catastrophe risks. As such, in Asia, the insurance industry is working to overcome specific challenges in the region of limited data and few up-to-date models. 
   Impact Forecasting, for example, has embarked on an Asia flood strategy to develop flood models as a top priority, offering fully probabilistic tools for Thailand, Malaysia and Jakarta. The team has also developed Realistic Disaster Scenario (RDS) flood models for China with focus on Shanghai and the Pearl River Delta. It has also been working to bridge the coverage gaps for other key perils comprising earthquake, typhoon and volcano. 
   To enhance model development, Impact Forecasting has undertaken damage reconnaissance and vulnerability studies in the region since the Thai floods in 2011 to incorporate the insights gained into its models. 
   The team conducted two studies in 2015 following the April Nepal earthquake and November-December Chennai floods, in addition to vulnerability field studies in Vietnam to understand building typology and their vulnerability to natural hazards. 
El Niño and Asia-Pacific in 2016
The El Niño-Southern Oscillation (ENSO) is an oceanic pattern that tracks anomalous warming or cooling of the waters in the central Pacific Ocean. A warm phase is known as El Niño, and a cool phase is known as La Niña. These phases typically occur every three to seven years, and often trigger significant weather disruptions that are felt around the globe. 
   When these anomalously warm or cool sea surface temperatures do not exist, ENSO is considered to be in a neutral phase. In the 66 years since official ENSO records began in 1950, there has been a nearly uniform distribution of ENSO phase years: La Niña (21), El Niño (22), and Neutral (23). The question then becomes: Do the different phases of ENSO lead to weather catastrophe loss variability?
   The impacts from El Niño are currently being felt around the world and are expected to continue through the boreal late spring and early summer before transitioning to ENSO-neutral conditions. 
   Typically the greatest impacts from an El Niño event are felt between the months of December and March, though lingering effects may last for several months after the phase has officially ended. 
   When conducting a financial loss analysis, it is found that there are significant distinctions between economic and insured losses by ENSO phases amongst the different regions of the globe. 
   Asia Pacific shows a 121% increase during La Niña ($47 billion) on average as opposed to El Niño ($21 billion). The difference is less pronounced between Neutral ($27 billion) and El Niño. Similar impacts are found when analysing insured losses, where La Niña years have historically been much costlier for the industry.
   Much of the increased losses during La Niña years can be attributed to greater risk of flooding in Asia Pacific. The two costliest flood events in modern history – Thailand in 2011 ($47 billion) and China in 1998 ($44 billion) – each occurred during La Niña phases. Tropical cyclone losses are also elevated during La Niña phases since the atmospheric pattern is often more conducive for landfalls in the southern half of the Northwest Pacific basin in the Philippines, Taiwan, and China.
   Regardless of the current phase of ENSO, extremely costly and catastrophic weather events can occur anywhere around the world. However, as this analysis concludes, the financial implications tend to be even greater during La Niña years in Asia Pacific and around the world on an economic and insured loss basis.
Global Weather Catastrophe Losses By Region
Mr Steve Bowen is Associate Director (Meteorologist) at Impact Forecasting and Mr Adityam Krovvidi is Head of Impact Forecasting Asia Pacific. Impact Forecasting is the catastrophe modelling development centre of Aon Benfield.
Aon Benfield is the 2015 winner for Reinsurance Broker of the Year at the 19th Asia Insurance Industry Awards
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