Transcript Managing man-made catastrophe risk: A market perspective

Managing man-made catastrophe risk:
A market perspective
CAS Special Interest Seminar on
Catastrophe Risk Management
Atlanta, 7 October 2002
Thomas Holzheu
Swiss Re
Catastrophe Events
1970 – 2001
# catastrophes
250
200
150
100
50
0
70
75
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 2
80
85
Natural catastrophes
Source: sigma 1/2002
90
95
Man-made disasters
'00
Man-made catastrophes in 2001
# catastrophes
Shipping
[22]
Aviation
[17]
Road/ Rail
[75]
Fire
[40]
other
[28]
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 3
Source: sigma 1/2002
Mining
[18]
Terrorism
[4]
Number of victims
1970 – 2001
# cat victims,
logarithmic scale
1,000,000
100,000
10,000
1,000
70
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 4
75
80
85
Natural catastrophes
Source: sigma 1/2002
90
95
Man-made disasters
'00
Insured losses [property only]
1970 – 2001
Insured losses,
2001-$ billion
30
25
20
15
10
5
0
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 5
70
75
80
85
Natural catastrophes
Source: sigma 1/2002
90
95
Man-made disasters
'00
Catastrophe Figures (property only)
2001 vs. Average
2001 Average
1987-2001
Insurance Losses (USD bn)
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 6
• Natural Catastrophes
World
USA
10.0
8.0
14.3
9.1
• Man-Made Events
World
USA
24.4
19.9
5.9
2.7
• Nat Cat per Peril (World)
Storm
Earthquake
Flood
7.2
0.6
0.1
8.9
1.6
0.8
Fatalities
World
USA
33 000
3 451
41 000
800
Source: Swiss Re, sigma
9/11 consensus loss estimates:
40.2 billion in total
Other
Liability
25%
Life
7%
Property
24%
Aviation
Liability
9%
Workers'
Comp
5%
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 7
Event
Cancellation
2%
Source: Insurance Information Institute
Aviation Hull
1%
Business
Interruption
27%
How was terrorism insured?
 Historically, fire insurance covered fire and explosion
damage regardless of its cause.
 Exceptions were war, civil war and civil commotion.
Terrorism was not mentioned in war exclusion clauses.
 Countries with frequent terrorism experience had special
regulations or pool solutions with government support in
place (UK, Spain, South Africa and Israel).
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 8
The global insurance system
passed the stress test
 The insurance industry will fulfill their contractual
obligations regarding WTC losses.
 Insurers didn’t initiate a sell off of stocks.
 Global insurance diversification worked. Losses were
spread widely between US insurers and global insurers
as well as between primary insurers and reinsurers.
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 9
Limits of insurability are
challenged!
 Terrorism risk is hardly quantifiable today, diversification
very hard to achieve.
 Capital markets don’t like the risk, therefore a very high
risk premium is needed to provide cover.
 Not only insurers have to learn how to assess and
manage the new risk, but also financial analysts and
rating agencies have to be educated.
 The main problem is the extremely high and
unpredictable loss potential --> 40 Bn USD x ??
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 10
The number of terrorist attacks in
2001 actually declined!
# attacks
700
600
500
400
300
200
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 11
81
83
85
87
Source: US Department of State
89
91
93
95
97
99
01
North-America shows the lowest
frequency of terrorism [1996-2001]
# attacks
96
97
98
99
00
01
200
150
100
50
Figure 12
Source: US Department of State
L.
Am
er
ic
a
M
id
-E
as
t
N
.A
m
er
ic
a
W
.E
ur
op
e
As
ia
Eu
ra
si
a
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Af
ric
a
0
8 of the 10 most costly terrorism
losses occurred in US and UK
Insured loss*
Victims
21 000
3054
907
Event
Country
2001
Terror attack against WTC, Pentagon and other buildings
USA
1
1993
Bomb explodes in London’s City (near NatWest tower)
UK
744
-
1996
Bomb explodes in Manchester
UK
725
6
1993
Bomb explodes in garage of WTC
USA
671
3
1992
Bomb explodes in London’s financial district
UK
398
20
2001
Suicide bombing at Colombo International Airport
Sri Lanka
259
2
1996
Bomb attack on London’s South Key Docklands
UK
145
166
1995
Bomb attack on government building in Oklahoma City
USA
138
270
1988
PanAm Boeing 747 crashes at Lockerbie due to
127
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 13
-
Date
1970
bomb explosion
UK
Three hijacked passenger airplanes dynamited in Zerga
Jordan
*) in USD m, indexed to 2001 , property and business interruption only
Source: Swiss Re, sigma No. 1/2002, Insurance Information Institute
WTC losses reduce the
reinsurers’ equity by 10 to 25%
in USD m.
2500
25%
2000
20%
1500
15%
1000
10%
500
5%
0
0%
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 14
Ac
Ch e
ub
GE T b
/ E ais
m ei
pl
.R
e
A
Ci xa
tig
ro
up
CN
A
Pa IN
Ha rtne G
nn r R
ov e
er
Re
Lib
er
ty RSA
M
FM utu
Gl al
ob
Ge al
rli
ng
Tr
an Q
sa BE
tla
nt
ic
Sc
or
30%
L
M loyd
un 's
ic
Be h Re
rk
s
Sw hire
iss
R
Al e
lia
nz
Ai
St oi
Pa
Ni ul
ss
an
AI
Zu G
XL ric
h
Ha Cap
i
rtf ta
or l
d
FS
3000
Current net loss estimate (before tax)
Source: Morgan Stanley, March 28th.
Net loss in %of equity (RHS)
Capital Myth: P/C industry has
$300 billion to cover terrorism
Surplus 12/2001
$289 billion
In $ billions
Personal lines
20.7
97.1
Commercial
"non-target" lines
137
Commercial
"target" lines
Reinsurers
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 15
132.0
39.6
”Target” commercial includes: Commercial property, liability and workers’ comp.
Sources: A.M.Best, Swiss Re Economic Research & Consulting
Commercial lines surplus is quite
stretched as is
In $ billions
175
1 57
150
1 37
-13
-23
125
-55
100
75
46
50
25
0
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 16
year end
y-t-d
2001
capital
surplus [1] losses [4]
reserves
shortfall
[2, 4]
A&E
shortfall?
[3]
free
surplus?
[4]
NPW in
2002 [4]
Sources: [1] A.M.Best, [2] Fox-Pitt, Kelton, [3] Morgan Stanley, [4] Swiss Re
Economic Research & Consulting
Summary
Natural Catastrophe: “Business as usual”
• 2001 loss burden below average
• upward trend, high fluctuations
• further premium increases necessary
• huge loss potentials persist
Man-made: Dealing with the new Spectre
• new risk landscape, exploration has started
• apply experience from other extreme risks
• balance carefully: risk appetite, exposure
control, risk and return
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 17
• public-private partnership for a limited time
Questions?
To be put on the mailing list
for Swiss Re’s sigma contact:
[email protected]
Or, download our sigma research from
http://www.swissre.com
Thomas Holzheu
“Managing man-made
catastrophe risk”
7 October 2002
Figure 18