California Earthquake Would Accelerate US Mortgage Meltdown Reveals Aon Benfield Study
Aon Corporation (http://www.aon.com) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 37,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions. (PRNewsFoto/Aon Corporation)
CHICAGO, IL UNITED STATES
CHICAGO and LONDON, Jan. 5 /PRNewswire-FirstCall/ -- In light of current
economic conditions, a major catastrophe such as an earthquake in California
would bring new misery to both US and international financiers, according to
an analysis released today by Impact Forecasting LLC, a division of Aon
Benfield, the world's premier reinsurance intermediary and capital advisor.
The Annual Global Climate and Catastrophe Report: 2008 highlights that the
lack of mandatory earthquake insurance in the state of California would result
in high levels of mortgage defaults should an earthquake occur.
Bryon Ehrhart, chief executive officer of Aon Benfield's Analytics
division, said: "Freddie Mac and Fannie Mae -- the beleaguered financial
entities that helped provide liquidity to the US mortgage market -- never
required homeowners to purchase earthquake insurance for their properties.
Approximately 86 percent of Californian homeowners do not have earthquake
coverage, despite most of them having mortgaged their homes. The 1994
Northridge Earthquake cost the mortgage industry up to US$400 million in
mortgage defaults due to foreclosure expenses, property repair costs, lost
interest income, write-downs of existing loan balances and other
administrative costs. It is hard to believe that there could be further
downside for investors in mortgages than experienced in 2008 but the
earthquake risk to the mortgage market is real."
The most significant natural catastrophe in 2008 was the tragic earthquake
in China on May 12th. Very little insurance was in place on the destroyed
properties, and the rebuilding costs are significant -- currently estimated at
US$146 billion. The largest insured loss event in 2008 was Hurricane Ike,
where costs are still being tabulated but it is likely to be the third most
costly hurricane on record.
Additionally, the Climate and Catastrophe Report reveals that between 1995
and 2008 there has been an increase in the average frequency of hurricanes in
the Atlantic Basin; average hurricane activity for the period stands at around
eight hurricanes per year -- compared to a 59-year average of 6.2 hurricanes
per year.
Furthermore, hurricane intensity has risen dramatically in the same
period, with a 44.9 percent increase in Category 3, 4 and 5 hurricanes, and a
staggering 82.1 percent increase in Category 4 and 5 hurricanes.
Whether the increase in severe storms is a direct result of warmer
Atlantic Ocean temperatures is still a hot topic of debate, according to
Steven Drews, associate vice president and lead meteorologist of Impact
Forecasting LLC and co-author of the report.
"Debate on this subject will continue through 2009 as additional research
by experts within the climatological and meteorological fields is peer-
reviewed, published and debated on in various science and environmental
publications as well at meteorological and climatological association events.
As this debate continues and the insured risk along coastlines continues to
grow, insurers and reinsurers need to become even more aware of their risk in
hurricane-prone areas and continue to manage that risk through portfolio
optimization and catastrophe modeling," he said.
Steve Bowen, meteorologist with Impact Forecasting and co-author of the
report, added: "The recent increase in hurricane frequency from 1995, at this
time, cannot be attributed to one single event or factor. Scientists in our
field continue to look for additional clues that might lead to conclusive
evidence that this increase can either be explained by naturally-occurring
climatic cycles or anthropogenic global climate change."
Aon Benfield's Annual Global Climate and Catastrophe Report: 2008 is
available for download at http://www.aonbenfield.com
About Aon Benfield
Aon Benfield is the world's premier reinsurance intermediary and capital
advisor, providing clients with integrated capital solutions and services. The
company offers clients access to every traditional and alternative market in
the world, through an international network of offices spanning over 50
countries and more than 4,000 professionals. Its worldwide client base is able
to access the broadest portfolio of integrated capital solutions and services,
world-class talent, unparalleled global reach and local expertise to best meet
their business objectives. Aon Benfield is the industry leader in treaty,
facultative and capital markets transactions.
