Don’t Expect a Repeat of Last Year’s Cat Lull

Experts say the bizarre weather patterns of 2013 make the year an anomaly—and a red flag.

Thanks to a quiet Atlantic hurricane season and the lowest observed tornado count in a decade, 
insured losses in the U.S. totaled just $12.8 billion in 2013—far below the average annual $29.4 billion in 2000-2012, according to Munich Re’s recent 2013 Natural Catastrophe Year in Review webinar.

But losses from severe thunderstorms—the leading cause of loss in terms of number of events, fatalities and loss amounts—exceeded $10.2 billion, making 2013 the sixth-costliest thunderstorm season on record in the U.S. In fact, of nine natural catastrophes dubbed “significant” for the U.S. last year, six were thunderstorms (two were winter storms; one was flooding).

“While 2013 was a relatively light year in terms of loss events and loss dollars, the nine significant events represent the fourth-highest total since 1950,” said Carl Hedde, head of risk accumulation at Munich Reinsurance America, Inc.

According to Peter Höppe, head of geo risks research at Munich Re in Germany, 2013 was the sixth year in a row that insured losses from convective storms exceeded $10 billion—a troubling statistic he attributes to climatic changes, particularly global warming.

In a recent study published in the American Meteorological Society’s peer-reviewed “Weather, Climate and Society” journal, Munich Re measured loss patterns over the last 40 years alongside the corresponding meteorological conditions east of the Rockies. “Rising Variability in Thunderstorm-Related U.S. Losses as a Reflection of Changes in Large-Scale Thunderstorm Forcing” identified a clear connection between climatic changes and U.S. thunderstorm losses—a conclusion that was consistent with additional ongoing research by Munich Re.

“What we see from our own data is increases in weather-related natural catastrophes, and hardly any increases in geophysical events, which are not influenced by changes in the atmosphere,” Höppe said. “We can already see some effects of global warming, especially in terms of more intense precipitation and a significant increase of water vapor in the atmosphere all around the globe.”

Noting that’s the result of increased evaporation from warming sea surfaces, Höppe identified the connection between global warming and convective storms: water vapor fuels large thunderstorm cells. “In the future, we can expect global warming-driven increases in the intensity of these events,” he explained. “In the long-term, climate change will probably increase activity of convective storms.”

But if anything, last year’s materially low cat losses have braced the p-c industry for a grim weather forecast, at least for the foreseeable future. The industry is currently reflecting financial strength and overall performance in high return on equity, positive premium growth and rare underwriting profit. Despite struggling interest rates, the p-c industry “is on track to record its best year in the post-crisis era,” according to economist Bob Hartwig, president of the Insurance Information Institute.

“We’re likely to see the largest dollar increase in policyholder surplus that potentially we have seen in the history of this industry,” Hartwig added. “The industry is very, very strong financially, and is certainly prepared for what could always be a state of mega catastrophes in the next 12 months.”

Jacquelyn Connelly is IA assistant editor.