11 June 2007

Tsunami Survivor at Munich Re Warns of Intense Hurricane Season

Warm Seas

``The current warm phase of sea-surface temperatures, which started in 1995, is still the most important driver behind higher hurricane intensity and frequency,'' Hoeppe said in an interview last week at Munich Re's headquarters. ``We will remain in this phase for at least another 10 years.''

His research guides Munich Re's management board and underwriters in deciding how much risk to take and at what price. ``We need to know what burdens we would have to bear if the worst came to the worst,'' said Heike Trilovszky, the head of Munich Re's underwriting department.

Munich Re almost doubled rates for property and casualty reinsurance in hurricane-affected areas after Katrina. Prices for coverage of oil rigs in the Gulf of Mexico jumped as much as 400 percent. The company said it further raised rates for storm-prone regions this January.

The 127-year-old Munich-based company and larger rival Swiss Reinsurance Co., based in Zurich, help insurers such as American International Group Inc. and Allstate Corp. shoulder risks for clients.

Climate Change

``The trend clearly points toward more frequent and more expensive natural disasters,'' said Ernst Konrad, the Munich- based head of equities at Bayern-Invest, which manages about $35 billion and owns shares of Munich Re and Swiss Re. ``That's good for reinsurers as it will drive demand and prices.''

Munich Re's net income rose for the past three years, reaching a record 3.4 billion euros ($4.6 billion) in 2006. Shares of Munich Re rose 32 percent in the past year, topping the 24 percent gain of the Bloomberg Europe 500 Insurance Index.

Hoeppe expects human-driven global warming to trigger more severe natural disasters.

This winter he predicted a major storm in Europe after noting that warmer-than-usual weather left less snow cover in the region. In mid-January, winter storm Kyrill swept through Britain, France and Germany, resulting in more than 40 deaths. Climate models indicate winter storms in Europe will become more intense and less frequent, Hoeppe said.

He reckons the 2007 hurricane season will be worse than usual because of the likely absence of El Nino, a warming of the Pacific Ocean that occurs every few years, and Saharan sandstorms that diminished the impact of last year's storms.

$100 Billion Storm

Hoeppe and most of his team work from the reinsurer's five- story complex in the Schwabing district of Munich, where a glass- encased mock-tornado machine whips up a cloud of mist to greet visitors. They analyze loss reports connected with major catastrophes since 1975, and have archives stretching back to the eruption of Mount Vesuvius in 79 AD.

Other forecasters concur on the likelihood of more big storms. Colorado State University's Philip Klotzbach and William Gray last month predicted five major hurricanes, or those with winds of at least 111 miles (179 kilometers) per hour, will form from the 17 hurricanes expected this season.

Hoeppe foresees a storm resulting in insured damages of $100 billion within the next 20 years. Climate change may eventually bring hotter summers to Europe, hurricanes to Lisbon and bigger storms in the Mediterranean, he said.

Cyclone Gonu, the worst to hit the Arabian Peninsula in more than 60 years, over the past two days pummelled coastal areas of Oman and Iran, including oil shipping lanes around the Strait of Hormuz. Earlier in the week Gonu was a Category 5 storm, the strongest on the Saffir-Simpson scale, as it churned across the northern Arabian Sea.

`Relatively Lucky'

Down the hall from Hoeppe's office, past maps showing ocean currents and storm systems, a computer model pinpoints the oil rigs in the Gulf of Mexico that are reinsured by Munich Re.

``With Hurricane Katrina we were relatively lucky that it didn't hit New Orleans with full force and that it didn't cross the areas most densely used by oil rigs,'' Hoeppe said, pointing to the storm's path colored in red and green.

One mouse click and Lorenz Dolezalek, the department's geoinformatics expert, shows a hurricane path moving through the Gulf toward the Houston-Galveston area. That represents one of Munich Re's worst-case scenarios because such a hurricane ``would hit an awful lot of drilling rigs,'' Hoeppe said.

Galveston, Houston

The region around Galveston is vulnerable because it ``has open access to the Gulf and therefore the sea could be pushed all the way into Houston,'' Hoeppe said. ``This would be a similar scenario to New Orleans, however not as severe since New Orleans is located in part below sea level.''

Losses from hurricanes could be surpassed by earthquakes in Los Angeles, San Francisco or Tokyo, events that are much harder to predict. ``Geologic risks like earthquakes, volcanoes and tsunamis don't show real trends,'' he said. ``Atmospheric events like hurricanes and winter storms do.''

Hoeppe, a native of the Bavarian town of Hassfurt, had little experience outside academia when he joined Munich Re. A year later he replaced Gerhard Berz, who tracked and forecast natural disasters there for 30 years.

``Berz was a famous personality in the international research community,'' said Robert Muir-Wood, chief research officer at Newark, California-based risk-modeler Risk Management Solutions Inc. ``Hoeppe is well on the way to establishing a similar reputation.''

One in 100

An adjunct professor at Ludwig-Maximilians-University, Hoeppe also lectures at the Geneva-based World Health Organization and World Meteorological Organization, and the Paris-based Organization for Economic Cooperation and Development.

The tsunami caught Hoeppe off-guard on Dec. 26, 2004.

``We felt an earthquake about 2 1/2-hours earlier, but I didn't expect that to result in a tsunami because that only happens in about one out of 100 quakes,'' Hoeppe said.

He fled with other guests to a higher point on the atoll, which was submerged under hip-deep water for several minutes. Reefs surrounding the island where he was staying diminished the waves' surge, he said.


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