Predicting Disaster, Managing Losses

Thomas R. LosterGeoRisks Research, Munich ReHead of Weather/Climate Risks Research

Münchener RückMunich Re Group

Finance, Environment and Sustainable DevelopmentCorporate Responsibility and Capital Markets Managing Qualitative Risk IssuesParis 10.1.2003

Finance, Environment and Sustainable Development Paris, 10th January 2003

Contents

– Loss trends

– Changing risks

– Tasks (homework)

– Environment and sustainability

Finance, Environment and Sustainable Development Paris, 10th January 2003

Finance, Environment and Sustainable Development Paris, 10th January 2003

Finance, Environment and Sustainable Development Paris, 10th January 2003

0

10

20

30

40

50

60

70

80

90

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Economic losses(2001 values )

of which insured losses(2001 values )

Trend of economic losses

Trend of insured losses

US

$ b

n

>167 bn US$

Great natural catastrophes 1950–2001

© 2002 GeoRisks Research Dept., Munich Re

Finance, Environment and Sustainable Development Paris, 10th January 2003

Great Weather Disasters 1950 - 2001

Decade Decade Decade Decade Decade1950 - 1959 1960 - 1969 1970 - 1979 1980 - 1989 1990 - 1999 1992 - 2001 last 10:60s

Number

Economiclosses

Insuredlosses

Losses in US$ billion - 2001 values

Decade comparison

13 16 29 44 72 64 4.0

41.2 54.1 79.4 126.1 425.4 362.0 6.7

- 7.2 11.5 23.0 98.9 11.079.3

last 10 Factor

MRNatCatSERVICE© 2002 GeoRisks Research Dept., Munich Re

Finance, Environment and Sustainable Development Paris, 10th January 2003

The heat is on

Finance, Environment and Sustainable Development Paris, 10th January 2003

The present problemsproblems will be strongly aggravatedaggravatedif the climatic change predictions come true

? greenhouse gases

? temperature air/sea

? humidity

? sea level

? windstorms/storm surges

? thunderstorms/hailstorms

? rainstorms/floods

? crop hazards

Increase in

? ozone "hole" ? skin cancer

Another problem

? biosphere damage

Finance, Environment and Sustainable Development Paris, 10th January 2003

very cold cold normal warm hot

normal warmer climate

More extreme events in a warmer climateExample: heat waves

extremeextreme

cold normal warm very extremehot extreme

Finance, Environment and Sustainable Development Paris, 10th January 2003

A few recent weather related disasters

Selected events (focus France, Germany)

Region Event Date Remark

France (N) Rain, Floods April/May 2001 worst since 1926Germany Severe storms May South: 140 mm/24 hrsGermany Severe storms July 2002 record winds, rainGermany Rain, Floods August 2002 RP > 150 yearsAustria Rain, Floods August 2002 RP > 150 yearsCzech Rep. Rain, Floods August 2002 RP > 100 yearsSpain Rain, floods March/Ap. 2002 225mm/3 hoursFrance (S) Rain, Floods September 2002 annual prec. in 36 hrs.France, Germany Windstorm Jeanett October 2002 large areaFrance, Europe Storm, Rain, Floods January 2003 widespread over

Europe

Events started to become more extreme !

Finance, Environment and Sustainable Development Paris, 10th January 2003

To Do

Finance, Environment and Sustainable Development Paris, 10th January 2003Münchener RückMunich Re Group

Windfield Storm „Lothar“ 26.12.1999

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no data1 - 7070 - 8080 - 9090 - 100100 - 110110 - 120120 - 130130 - 140140 - 150150 - 160160 - 170170 - 220

Finance, Environment and Sustainable Development Paris, 10th January 2003Hail Munich

Finance, Environment and Sustainable Development Paris, 10th January 2003

Computer techniques

Overlayingandcalculating

• buildings• values • land use• storm tracks• flood levels• sums insured• etc.

Finance, Environment and Sustainable Development Paris, 10th January 2003

Loss Potentials of Selected Natural Disaster Scenarios

Scenario Return period Economic loss Insured loss(1x in .... years) (US$ bn) (US$ bn)

Windstorm USA 100 80 40

Earthquake USA 100 50 20

1000 200 80

Windstorm Europe 100 30 20

Windstorm Japan 100 25 20

Earthquake Japan 100 100 10

1000 2000 50© Munich Re 2003

Finance, Environment and Sustainable Development Paris, 10th January 2003

Insurance Tools

?Adequate pricing?Substantial deductibles,

based on the respective exposure ?Loss prevention?Accumulation control

?Improved claims settlement?Reinsurance, retrocession ?Liability limits?Exclusion of certain hazards?Exclusion of particularly exposed areas

Finance, Environment and Sustainable Development Paris, 10th January 2003

LotharPrestige

Finance, Environment and Sustainable Development Paris, 10th January 2003

Finance, Environment and Sustainable Development Paris, 10th January 2003

Finance, Environment and Sustainable Development Paris, 10th January 2003

Meet the Expectations of the Stakeholders

– Shareholders

– Clients

– Rating Agencies

– Public Interest, Reputation

– Employees

Environmental Issues and SustainabilityEnvironmental conditions

Finance, Environment and Sustainable Development Paris, 10th January 2003

– Loss potentials analyses (incl. trends)

– Insurance tools (e.g. adequate premiums)

– Asset Management (DJSI, FTSE4Good etc.)

– Housekeeping (Certification etc.)

– Real Estate Management

– Education

Environmental Issues and SustainabilityImportant tasks (homework)

Finance, Environment and Sustainable Development Paris, 10th January 2003

Kyoto Protocol Support Insuring the MechanismsProducts can include:

- Business Interuptions- Forest-/Agriculture projects (CO2 sinks, yield)- Buffer Insolvencies etc. (credit insurance, surety bonds etc.)- Projects Financing (more an issue for banks)- Others (Consulting, Trading, CO2 Banking etc.)

What we need:

=> long-term political certainty on regulations (political risks)=> clear values for GHG emission reductions (business plans) => active CDM-, JI-, ET World (spread portfolios)=> strong rules and regulations (=> compliance regime)=> good global consensus is an important prerequisite!

Finance, Environment and Sustainable Development Paris, 10th January 2003

Thank you – questions ??