Natural Catastrophes: Is this the New Norm and other often asked Questions

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1 27/04/12 Natural Catastrophes: Is this the New Norm and other often asked Questions and inadequate reinsurance Sean Devlin CAS Spring Meeting May 23, 12 2 Question 1 First a quick Look back at 11 January February March April Japan Tohoku earthquake Record floods swamp Australia s Cyclone Yasi, one of the largest and tsunami east coast, killing 3 people, and most powerful storms ever Buildings Impacted Series of tornadoes batter U.S. shutting coal mines, wiping out to hit Australia, devastating Coastal Southeast, killing an estimated roads, rail lines and thousands of sugar and banana crops. Municipalities people. One Tornado homes and costing more than $2 Massive winter storm hits Non-Coastal billion in insured losses. U.S. causing travel chaos and Municipalities spans 81 miles. Record snowfall in USA power outages. TOTAL May June July August Tornado hits Joplin MO, killing about 160 people, the single deadliest U.S. twister since 1947 Floods in China s central and southern provinces kill more than 0 people. More than half a million are evacuated Worst drought in decades in Horn of Africa causes starvation. Flooding in Thailand begins. Hurricane Irene kills at least 40 people in the eastern United States and triggers the worst flooding in decades in some states. September October November December Worst flooding along the Mekong River since 00. Meanwhile Texas experiences record breaking wildfires Unusual October Snowstorm leaves billions without power and insured losses reach $600 Million. Thailand flood kills more than 600, damage of at least $42 billion disrupting auto and electronics global supply chains Hurricane $ 4.3 Bn Tropical Storm $.Bn Wildfire $.Bn Tornado/Wind $26Bn Winter Storm $ 2Bn Your thoughts on what we have experienced the past few years, is it the new norm? 4 1

2 27/04/12 Industry Results Before we think about the "New Norm", what is normal anyway? 0.0% 9.0% 90.0% HO/FO Schedule P L+LAE Ratios How do we judge what is or isn't normal? Recent memory short memory with long faces 8.0% 80.0% Direct Net Selective memory name the last Super Bowl losers 7.0% 70.0% Historical data and statistics is there any bias 6.0% 60.0%.0% 0.0% Trends or Normal Variation objectivity are all things considered? Cat model opinions when have they ever been right? Hurricane spikes in '04, '0, '08 concentrate on Net Upward trend driven by storms, economic factors Net worse than direct not much cat protection Perceptions (ours or others [media]) perceptions become our reality 6 When did we start to ask what is normal? My opinion points to the "Real Culprits" Population, Wealth and Technology Insured catastrophe losses in USD bn, indexed to Hurricane Andrew Northrid ge Winter storm Lo othar Attack on WTC Hurricanes Ivan, Charley et al Hurricane Katrina et al Gustav Hurricane Ike, Technology Then and Now Earthquake/tsunami Man-made disasters Weather-related Nat Cats Total 7 8 2

3 27/04/12 Question 2 Joplin, lets get a perspective for what a tornado can do Are we seeing more Tornados and Tornado Losses than ever before? Records and Near Records Some Records 78 most ever in single month 42 previous record deaths highest since rd most active year since 1990 Large continuous length 80m Longest Continuous 192, 234m 128 most ever recorded in AL 94 was prior record in 09 7 Miles 21 Miles overall 12 3

4 27/04/12 Where are the US Cat Losses Coming From anything unusual? Tornadoes: Where do they occur? PCS Losses PCS Losses % 3.87%.6% Earthquake 7.64% Fire - Other Hurricane.6% 7.79% 40.14% 39.08% Riot 40.16% Tropical Storm Utility Service Disruption 42.72% Volcanic Eruption Water Damage Wildland Fire Wind and Thunderstorm 2.00% 0.27% Event Winter Storm 1.80% 1.67% 0.08% 0.01% 1.28% Workers Compensation 0.0% But the averaged annual losses have increased by over 0% Non Hurricane PCS Wind Losses, unusual but is it outside of the expected? Let's Try Again with Less Noise % of loss from Joplin/AL events SCS = severe convective storm = straight line winds, thunderstorms, tornado, hail, etc. Adjusted Threshold to make counts and loss $ consistent over time Volume and trend adjustments make 1990 and prior uncertain Industry coding may be more suspect, but 1970s and 1980 quiet per PCS and ISO Excess Wind data Removing uncertain years prior to 1990 Adjusted Losses Capped at $3B per event What happened from -0? Weather seemed like, losses lighter

5 27/04/12 Are weather events more common? Why are losses up in recent years? # of Severe Events vs Adj Losses Adj Loss # Of Events 40,000 3,000,000 2,000,000 1,000,000, # of TO Events vs Adj Loss Adj Loss Tornado 2,000 1,00 1, Millions Avg Loss Per Event Type ,000 2,00 2,000 1,00 1, Thousands TO Wind/Hail Severe events of Tornado, Wind and Hail captured by NOAA/SPC Little correlation of either # of events to Industry losses Adjusted SCS/Winter PCS losses/per SPC event regardless where losses came from Hitting more populated location? Economic driven? Tornado Historical Record Why are losses up in recent years? Year MA PCS vs Unemployment Rate.0% 8.0% 6.0% 4.0% 2.0% 0.0% YEAR Yr MA PCS UE 3 Yr MA UKN Doppler Radar Introduced Expanded use of Doppler Radar

6 27/04/12 $36 Bn $Bn $19.6 Bn Kansas City 1.x Wichita Tulsa Springfield St Louis 4x Oklahoma City Little Rock Memphis Dallas 2x Shreveport Jackson Atlanta Birmingham East St Louis is % the size of Joplin in population Density Question 3 East St Louis 1896 $12-13 Bn Normalized to What do you predict for the Tornado and Hurricane season 12? 6

7 27/04/12 Question 4 2 Why did 11 have so many tornados, any insights into 12? Ingredients for forming Convective Storms, Mesocyclones and Tornadoes Why is ENSO so Important?... the Jet Streams Arctic High La Nina El Nino ENSO

8 27/04/12 ENSO - Hmmmm Warm Dry Air over Texas? ENSO Date Tornadoes Fatalities Location Phase April, 1908 > Central-Southeastern US La Niña May-June, 1917 > Central-Southeastern US La Niña March, >747 Mississippi Valley-Ohio Valley Neutral May, 19 >90 1 Great Plains, Mississippi Valley El Niño March 21-22, 1932 > >3 Southeastern US El Niño April -6, >436 Southeastern US Neutral March-May >270 Great Plains El Niño April 9-, Southern Great Plains Neutral May, 1949 >82 66 Central-Southeastern US Neutral April-May >144 Southern Great Plains, Upper MS Valley El Niño April 11-12, Central US Neutral April 3-4, Eastern US La Niña April 2-3, Southern Plains-Mississippi Valley Neutral May, US-Canada, Eastern Great Lakes La Niña May, Central and Southern US El Niño April-May Southern Great Plains La Niña May, >48 Southern Great Plains, Midwest, Southeast US Neutral May, Great Plains-Midwest Neutral May, 08 >0 >40 Great Plains, Mississippi Valley, Southeast La Niña April, Southeast US La Niña La Nina Conclusions What is the New Norm? Question 6 Greater values at risk expand dollar loss potential Thunderstorm and Tornado no longer can be simply considered as an attritional risk Combined losses could equal or surpass single large cat event especially to those who avoid high severity hazards Slow but equally painful surplus erosion due to increased net retentions Historical tornado losses of over $12Billion normalized have occurred and it is only a matter of time before we see some losses twice to four times that of Joplin There will be more surprises ahead that is one prediction that we can count on! 31 one last question, Any thoughts on models? 8

9 27/04/12 Closing thought Thank you "All models are wrong but some models are useful" f l (when using them for the intended purpose) 33 Your Questions? 9