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The Actuary The magazine of the Institute & Faculty of Actuaries

2002 – a less catastrophic year

19,000 people worldwide were killed by natural and man-made catastrophes in 2002, according to a preliminary estimate from Swiss Re’s sigma report (available in March from sigma@swissre.com). Beyond the human cost, financial losses from major events are estimated at $40bn, of which the insurance industry is liable for around $12bn. After the extraordinary losses of 2001, financial losses resulting from catastrophes returned to more average levels in 2002. However, as the European floods show, large losses remain a real threat.

More than 300 major events in 2002 caused estimated economic losses of $40bn, well below the average of $68bn recorded by sigma since 1990. Of the 19,000 people who lost their lives in catastrophes in 2002, some 2,000 died in an earthquake in Afghanistan in March and over 1,400 lost their lives when a Nigerian ammunition depot exploded in January.

Natural catastrophes cost $10bn

Natural catastrophe losses, estimated at $10bn, hit property insurers harder than man-made losses, as they have done every year since 1990, with the exception of 2001 and the 11 September 2001 loss. High-profile natural catastrophes in 2002 included the two flooding events in Europe in July and August, which caused insured losses of $3.2bn. In September, heavy rain in France brought additional losses of $440m. In the US, a series of tornadoes in April cost insurers $1.5bn, while hurricane Lili in the Caribbean and the US caused losses of $650m.

Man-made catastrophes cost insurers $2bn
Man-made catastrophes in 2002 accounted for insured losses of $2bn, which were mainly the result of major fires, aviation, and space disasters.

Relatively low claims payments for insurers
The $12bn estimate for total insured catastrophe losses worldwide equates roughly to the average since 1970, adjusted for inflation, according to sigma statistics. The losses are, however, significantly lower than those experienced during the claim-intensive years since 1990, when annual losses averaged $21.5bn. 2002 should not, however, be seen as signalling a return to lower claims. The factors causing higher losses – greater population densities and higher concentrations of insured values – still remain.

In fact, the flood losses in 2002 highlight the potential threat presented by risk concentrations. Losses arising out of the 2002 floods totalled $3.9bn, which is higher than the average recorded since 1990 ($1.1bn) and eight times higher than the average recorded since 1970 ($0.5bn). As a result, the insurance industry has been galvanised into developing insurance solutions to cope with the threat of significant flood losses.