The fact nevertheless remains that, in the longer term, the number of severe weather-related natural catastrophes is set to increase due, among other things, to global warming. Combined with further increasing concentrations of values in exposed areas, this means continually rising loss potentials. Even apparently contradictory events in Europe, such as the huge snow-pressure losses at the beginning of 2006 and the extremely warm start to this winter, with the potential for severe winter storms, fit into this pattern.

—Dr. Torsten Jeworrek, member of Munich Re’s Board of Management

Some of the exceptional natural catastrophes in 2006 cited by Munich Re are:

• January to March: Record snow-pressure losses in Austria, hundreds die amid freezing temperatures in Eastern Europe.

• 20 March: Warning signs for Australia; strongest cyclone on record causes insured losses of US$400 million in sparsely populated area.

• 27 May: Earthquake on Java results in unexpectedly great destruction, showing the vulnerability of Southeast Asian conurbations. More than 5,000 lose their lives.

• 28 June: US$300 million in insured losses following a severe hailstorm in the Black Forest region.

• Billion-dollar losses due to tornadoes in the United States; mini-tornadoes in London, Hamburg and Nuremberg demonstrate the loss potentials in big cities — also in Europe.

The North Atlantic hurricane season brought far fewer storms this year; the insurance industry sustained its lowest losses since 2000. Ultimately, insured losses due to tropical cyclones amounted to US$ 250m compared with some US$87 billion from last year’s unparalleled hurricane series.

Only three tropical cyclones caused substantial losses in 2006, as against the previous year’s 17. Exceptional meteorological factors accounted for the lower level of hurricane activity. Dust particles blown from the Sahara to the area where hurricanes develop absorbed solar radiation, warming and dehumidifying the layer of air at medium altitude. This hindered the formation of cyclones, particularly in August. In October, the El Niño phenomenon in the Pacific had a curbing effect. On the other hand, in September, prior to this El Niño effect, there were four hurricanes. Many storms were steered away into the Atlantic without reaching the mainland.

High ocean temperatures, up to one degree above the long-term average, had been expected to increase the number of cyclones. According to World Meteorological Organization estimates, 2006 was the sixth-warmest year ever recorded in terms of air temperature, and it was even the fourth warmest in the northern hemisphere. This means that both globally and for the northern hemisphere, the ten warmest years on record occurred during the period 1995 — 2006.

No one seriously disputes climate change any more. In the long term, it will be a factor which increases the number of severe natural catastrophes.

—Prof. Peter Höppe, Head of Munich Re’s Geo Risks Research

Due to the prolonged cyclical warm phase in the North Atlantic, which is reinforced by global warming, Munich Re believes that in the next one to two decades the number of hurricanes will exceed the mean for the years 1950–2006 (annual average: ten named cyclones, six of hurricane force).

Cyclones. In Asia, cyclones caused worse destruction than in the previous year, with insured losses of US$1.5 billion and economic losses of US$15 billion. By far the most devastating tropical storm was Typhoon Shanshan, which swept across Japan and Korea between 16 and 19 September with wind speeds of up to 145 kilometers per hour, causing insured losses of US$1.2 billion.

Cyclone Larry, which struck the sparsely populated north Queensland coast on 20 March with wind speeds of up to 290 kilometers per hour, is believed to be a sign of things to come: it was the most severe tropical storm ever recorded in northern Australia. In some places, practically every building suffered damage. It was only thanks to the region’s relatively sparse population that the economic loss did not exceed US$1.1 billion and the insured loss totalled US$400 million. If the storm had struck a major city such as Brisbane, the loss would have been much higher.

Worldwide, some 18,000 people died in 2006 as a result of natural events such as earthquakes, storms or floods—in the previous year, more than 100,000 lost their lives, primarily in the devastating earthquake that hit Pakistan and India on 8 October 2005.

Indonesian earthquake. In 2006, the natural catastrophe which caused the greatest number of deaths was again an earthquake. On 27 May, a force 6.3 quake shook the densely populated but economically less developed region around the city of Yogyakarta on the Indonesian island of Java. According to official statistics, 5,750 people were killed and about a million rendered homeless in a matter of seconds. 154,000 houses were destroyed and the economic loss totalled US$ 3.1 billion.

Both the extent of the damage and the evident vulnerability of relatively new buildings such as shopping centres and hotels, despite adequate building regulations, are grounds for concern—particularly since this was only a medium-strength earthquake.

Although the insured loss amounted to only US$35 million (around 1% of the overall loss), it would have been higher had it not been for the low insurance density. An earthquake on that scale causing similar destruction in the equally earthquake-prone region around the capital Djakarta, where 40% of Indonesia’s entire insured values are concentrated, would be more devastating in both human and insurance terms. Munich Re will unveil a new earthquake risk model for the region in spring 2007, which will incorporate the latest findings from the area.

Indian floods. Further major flood losses for the Indian insurance industry illustrate the risks that also accompany rising concentrations of values in emerging markets. Insured losses in August, mainly incurred in the western Indian state of Gujarat, amounted to some US$350 million. In the previous year, the extreme monsoon rains had caused an insured loss of some three-quarters of a billion US dollars to the region around the city of Mumbai in the neighboring state of Maharashtra—the most expensive natural catastrophe that India’s growing insurance industry had ever faced.

European snow. In Europe, the natural event that caused the year’s greatest impact was an exceptionally snowy winter. From November 2005, huge amounts of snow fell over many parts of central Europe. In the months that followed, heavy layers of snow accumulated on buildings as many places experienced further snowfalls alternating with only short thaws. In southern Germany, Austria and parts of Eastern Europe, many roofs collapsed under the enormous weight, and thousands of helpers desperately shovelled snow from the roofs of houses and other buildings. 15 people were killed when an ice rink collapsed in Bad Reichenhall (southern Germany) on 2 January, although this was also significantly due to technical defects.

In Austria, snow pressure accounted for almost US$400 million in insured losses—a very large loss for the Austrian insurance industry, and the equivalent of nearly ten per cent of the annual property insurance premium income.

Both Europe’s exceptionally snowy winter conditions in 2005 and the warm start to the 2006 winter are in keeping with the phenomenon of climate change. Apart from the trend towards warmer winters, there is also likely to be an increase in weather extremes with a greater range of variation. In Germany, the largest individual loss was caused by a hailstorm which hit the Black Forest region on 28 and 29 June, causing an insured loss in the order of US$300 million.

Tornadoes. The vulnerability and loss potentials of conurbations in particular were also illustrated by a number of tornado events in Europe. Insured losses were not unduly high, amounting to several millions. Nonetheless, the tornadoes had reached force two on the five-point Fujita Scale, with wind speeds of up to 250 kilometers per hour.

Tornadoes are usually short-lived; in the cases mentioned, they cut a swathe of devastation a few hundred metres long in residential areas. The damage caused indicates the enormous loss potential, especially in conurbations. Prof. Höppe: “They occur the world over, spawned by severe thunderstorms, and are well nigh impossible to forecast.”

During the Christmas period, tornadoes caused further losses in Florida—a relatively uncommon event for this time of year. One tornado struck just 60 kilometers from Orlando with its Disney World theme park. Munich Re has repeatedly drawn attention to the risks that accompany concentrations of values under the rubric “Megacities — Megarisks”.

Munich Re believes the rising loss potential from natural catastrophes will substantially increase demand for reinsurance in the longer term.

We regard the price increases that followed the hurricane year 2005 as enduring. Constant improvements in modelling the growing catastrophe risks, combined with skilful risk management, will enable us to provide cover at prices, terms and conditions commensurate with the risks.

—Dr. Torsten Jeworrek