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2010 Disasters Cost the World $218 Billion and the Insurance Industry $43 Billion

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Swiss Re’s latest sigma study (full report; abstract) reveals that the final economic losses resulting from disasters (both natural and man-made) across the globe in 2010 was $218 billion — a number that dwarfs the $68 billion in damages caused by catastrophes in 2009.

With unprecedented flooding, Asia was the region worst hit, with $75 billion of the total occurring there. In relative terms, however, the fallout may be worse for the Latin America/Caribbean region. The $53 billion caused by the earthquakes in Haiti and Chile represents a staggering 1.1% of the region’s GDP. (By comparison, Asia’s billion in losses was only 0.

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28% of its GDP.)

Here is Swiss Re’s regional breakdown of the number of disasters, death toll and financial fallout.

Insured losses in 2010 totaled $43 billion as a whopping 10 different events caused insured losses of at least $1 billion. This was a huge jump from the $27 billion in insured losses for the global industry in 2009.

In all, 2010 had 304 catastrophic events.

The globe has seen a troubling trend of more natural catastrophes nearly every year in recent decades, and 2010 was no different with 167 natural disasters. On the flip side, the declining trend of man-made disasters the world has experienced since 2005 also held true, with just 137 man-made events. This is perhaps the only positive nugget of information in the entire report. (Although even this silver lining is bittersweet as you will see below when we look at the resulting death toll.)

Worst of all, of course, were the 304,000 people killed by disasters last year, making 2010 the third deadliest year since 1970 (the year Swiss Re first began collecting such data).

In 2010, severe catastrophes claimed significantly more lives than the previous year: around 304,000 were killed, compared to 15,000 in 2009. The deadliest event in 2010 was the Haiti earthquake in January, which claimed more than 222,000 lives. Nearly 56,000 people died during the summer heatwave in Russia. The summer floods in China and Pakistan also resulted in over 6,200 deaths.

Man-made disasters accounted for a small percentage of deaths last year, in relative terms, but the 6,446 killed was still a significantly higher number than the 5,970 who died in this manner in 2009. This fact puts a large blemish on the positive news that there were fewer man-made events. There may have been fewer incidents, but the ones that did occur were deadlier and that lower-occurrence/worse-outcome ratio should be going the other way in 2011 as safety, security and other risk management means strive to lessen the impact of catastrophes.

The man-made disasters that claimed the most victims in 2010 were a lead poisoning outbreak at an illegal gold mine in Nigeria in March (400 victims, mainly children), a stampede on a bridge at a festival in Cambodia in November (375 victims) and the collapse of a gold mine in Sierra Leone in March that killed approximately 200 people. Meanwhile, aviation and maritime disasters accounted for more than 800 and 1,100 victims respectively.

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Moving beyond the past, the globe has already been badly battered so far in 2011.

The Japanese earthquake and tsunami killed an estimated 18,500 people and caused upwards of $30 billion in insured losses alone, according to some experts. The Christchurch quake in New Zealand also ravaged the insurance industry, Australia floods cost billions and winter storms in the United States did plenty of damage of their own.

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Who knows what the final fallout will be from social revolutions in the Middle East, but it’s safe to say that there will be some claims.

All this and it’s not even hurricane season yet.

Hopefully, there is no way that more people will be killed by disasters in 2011 than we saw in 2010. But when it comes to economic losses, specifically insured losses, it is already shaping up to be a historic, market-altering year.

The Top 5 Global Political Risks of 2011

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Each year, the Eurasia Group, a global political risk research and consulting company, releases its list of the top risks for the upcoming year. Generally, atop the rankings are a lot of unstable nations ripe for collapse or regional disruption. (Think places like Iran, Iraq, North Korea, Afghanistan and Venezuela in recent years.)

This year, however, only one rogue nation cracks the top five (North Korea). Instead, global macro-shifts and emerging, nontraditional global conflicts are viewed as the largest threats.

Below is a rundown of their top five.

Head over to their website for a more detailed description of their top ten global political risks.

1. The G-Zero

The concept of the “G-Zero” presents a world devoid of global leadership. Ever since American primacy has dwindled on the international scale, most thinkers have looked at a few likely realities for the coming decades: (1) the United States re-establishing itself as the dominating global power, (2) the start of a “Chinese Century,” (3) the “Rise of the Rest” in which multiple emerging economies (China, India, Russia, Brazil, etc.) become the most important political force or (4) the coordinated rise of international cooperation via bodies like the G-20.

Another scenario, the G-Zero, seems increasingly likely to the Eurasia Group and its head Ian Bremmer. And with no apparent global leadership, conflict rooted in nations increasingly operating for their own self interest will emerge.

the default policy response to a breakdown in global economic governance is every man/nation for himself. As demonstrated even in a politically integrated Europe, without common rules, there’s no such thing as collective economic security. In the G-Zero, domestic constituencies will become increasingly effective in pushing populist agendas on trade, currency, and fiscal policy. However much economic dispositions become ideologically statist, in the absence of agreed global norms, economic agendas are overwhelmingly resolved at the national level

On a conference call about this list today, Bremmer mentioned that this new reality was probably coming anyway due to various factors but has been delayed by the cooperative sentiments and two years of panic following the meltdown of the global financial system. Obviously, the fallout of that is far from over, but the panic has at least subsided.

Thus, enter the G-Zero — probably this year, they say.

2. Eurozone Economics

With the debt and fiscal concerns still mounting throughout the Eurozone, the next year may see increasing tension between the struggling economies (specifically, Ireland, Greece, Portugal and Spain) and those tasked with bailing them out (namely, Germany and France). Obviously, populist sentiments in Germany and France are making it harder and harder for Berlin and Paris to continue helping out other countries. Given this, the Eurasia Group sees a future of “bailouts with conditionality” that aren’t altogether appealing for either party, much like those adopted by the IMF and World Bank while loaning “strings attached” money to South American and African nations throughout the 1980s and 1990s.

In the meantime, real Eurozone reform remains difficult and far away. And the resulting uncertainty will make the market and investors increasingly leery of the region in the coming year.

3. Cybersecurity and Geopolitics

Despite Time magazine’s assertion that Facebook’s Mark Zuckerberg was the man of the year, WikiLeaks founder Julian Assange kicked a much bigger hornet’s nest last year. Now, information anarchists of his ilk will make more disruptions for nations that have their secret information exposed. (Companies, too … tread lightly.)

More importantly, cyberwarfare in which states attack states has become a reality. We have seen it in Iran, from China and (probably) from Russia. We will likely see it more in 2011.

4. An Unresponsive China

With China’s economy and exports still booming even amid sluggish global consumption, Eurasia Group believes that Western nations will implore Beijing to adjust its growth model to one that better dovetails with the policies of the world’s other leading economies. This is what is referred to as “global rebalancing.” China, in theory, agrees with the need to do this — not just to integrate with the rest of the G-20, but for its own self-interest. Long-term, its export-driven economy just isn’t sustainable, and it knows this.

But it is very unlikely that Beijing’s rebalancing schedule will come as quickly as other nations want it to. And this may cause great contention.

China will talk of participating in global coordination, but they will not follow through.

China’s pattern of export growth that is twice the rate of economic growth, with resulting large current account surpluses, will be the object of intensified international outcry as the world’s second largest exporter in a demand-constrained world economy. In 2010, the gloves started to come off between the United States and China. The trend broadens this year with Europe, japan, and much of the emerging markets and the developing economies also looking to China to adjust its growth model …

frustration with and pressure on China will build. So too will the risks of market-moving international reactions to China’s incremental, deliberate, consensus-driven approach.

Much has been made about how China will disrupt the “old world order” in the next few decades. For the next 12 months, however, Bremmer and company see this as the largest factor that may cause market disruption.

5. North Korea

Kim Jong Il was — and is — utterly nuts. So him beginning to transfer power to his son is, in a way, a good thing. How can anyone possibly be as certifiably insane as that guy?

But the transition also might prove to be a major destabilizing force on the Korean peninsula. And that could be disastrous for South Korea, the region and the international community.

North Korea’s decision to keep pushing the South Koreans’ buttons is almost certainly the result of a faster-than-expected leadership transition in Pyongyang. That’s the only variable that could explain the sudden dramatic change in behavior. The belligerence could be coming from external concerns—that Kim Jong Un will be vulnerable to international “testing” if Pyongyang doesn’t first prove his mettle. Or it could be internal if Kim Jong Il doesn’t believe he can win agreement within the North Korean leadership for his son’s safe accession, especially in the event that the father dies suddenly. The latter scenario is much more troubling in terms of North Korea’s willingness to provoke military conflict on the peninsula. There’s no way of knowing which of the two is the more likely.

On today’s conference call, Bremmer added that war on the peninsula is indeed a possibility and that, in fact, it is “probably the only place in the world that large-scale conventional warfare is possible.”

Troubling indeed.

China Plays Hardball With Rare Earth Exports

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Rare earth metals are used in the manufacture of many items such as electric cars, computer screens, wind turbines and cell phones, just to name a few. Needless to say, rare earth metals are much-needed and in almost constant high demand. And when businesses need rare earth metals, there’s one country they turn to: China.

China produces 97% of rare earth metals, much of which is exported to Japan. But recent reports claim that shipments of the metallic element to Japan were halted. There are a few theories as to why.

The halting of shipments came, coincidentally (or not), after Japan arrested a Chinese fishing boat captain “whose trawler collided with two Japanese patrol boats off disputed islands in the East China sea.” Now, Japan is accusing China of using the metals, and its near-monopoly of it, as a “bargaining chip.” A claim China denies:

Speaking to a China-European Union business summit in Brussels, [China’s Premier] Wen [Jiabao] echoed other Chinese officials in denying Beijing had ordered traders to hold back rare earth shipments to Japan due to a recent flare-up in tensions, the newspaper China Daily reported Friday.

China claims they cut back (denying they halted shipments) because demand for the metals is exceeding supply (a claim that has received much attention lately). In either case, the Japanese are very concerned that cutbacks in exports will hurt their tech-heavy manufacturing businesses. A valid concern indeed.

Transportation in India: No Good Options

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india traffic

“Organized” chaos

A few weeks ago, a report came out that — once again — India led the world in traffic deaths. Given its population (estimated at nearly 1.2 billion, which puts it behind only China), the nation would logically be near the top of the list regardless of any priority it placed on safety. In fact, when India took over the number one spot for road fatalities (from China) in 2006, many people saw this as further evidence that India was truly becoming a economic power.

While having many of you citizens die on the road is obviously counterintuitive to progress, more people driving meant more people were buying cars because more people had more money. Safety needed to be improved, sure, but automobile transportation is always going to lead to some casualties that correlate to population and/or what percentage of that population has purchasing power great enough to afford a luxury like a car.

Anyone who subscribed to that theory five years ago, however, is probably starting to see India’s high death rate for what it is: tragic and avoidable. This New York Times article breaks it down.

While road deaths in many other big emerging markets have declined or stabilized in recent years, even as vehicle sales jumped, in India, fatalities are skyrocketing — up 40 percent in five years to more than 118,000 in 2008, the last figure available.

A lethal brew of poor road planning, inadequate law enforcement, a surge in trucks and cars, and a flood of untrained drivers have made India the world’s road death capital. As the country’s fast-growing economy and huge population raise its importance on the world stage, the rising toll is a reminder that the government still struggles to keep its more than a billion people safe.

In China, by contrast, which has undergone an auto boom of its own, official figures for road deaths have been falling for much of the past decade, to 73,500 in 2008, as new highways segregate cars from pedestrians, tractors and other slow-moving traffic, and the government cracks down on drunken driving and other violations.

It has been illustrated through various means time and time again, but this is just one more example of how India’s city planners and public officials are failing to provide adequate infrastructure to support the nation’s booming economy.

Unfortunately for Indians, roadways aren’t the only transportation problem. As you can see in the video below, the trains are not a much better option. Marked by overcrowding and delays, it takes workers who commute to the major cities an exorbitant effort just to make it to their jobs every day. Worse still, there are still many political and religious-based attacks on railways in many regions. The 2006 Mumbai bombings, for example, killed more than 200 and injured another 700.

A few weeks ago I went to the annual meeting of Coface, a company that specializes in international credit risk. As it does each year, Coface brought in a group of experts to talk about the most pressing global economic issues and professor David Denoon of New York University spoke about China and India, painting a much different development picture of the world’s two most populous locales.

China, he said, is characterized by places like Shanghai, where just in recent years alone construction has begun on more high rises than exist in all of Chicago. By contrast, he emphasized that the per capita income in India is merely $3,100. That’s equal to one-third of the average income in Brazil and one-fifth the average in Russia.

Looking at those numbers, it seems that both infrastructure and income distribution will pose a growing concern for the nation that puts the I in BRIC.*

* (The acronym for the world’s four biggest emerging economic powers, Brazil, Russia, India and China. Also, for a look at some of the risks that have plagued the largest Indian carmaker, check out Bill Coffin’s look at Tata Motors’ “Cheap Cars, Costly Protests.”)