2014 a reprieve year for cat losses in Canada? Not so fast

Damage from the June 17 tornado in Angus, Ontario. Insured damage from the storm comes in at more than $30 million.

Some are calling 2014 a quiet – even a ‘reprieve’ – year for Canadian catastrophe losses.

But when you put the year’s $880+ million up against 2013’s $3.2 billion, of course it will look like a quiet year (even a $2 billion year would seem relatively benign when placed against an unprecedented year like 2013). It’s like comparing a scorpion to an alligator and discounting the dangers of the first merely because of its size. Not a good plan.

In truth, when you place 2014’s cat losses up against other recent years, it goes down as another significant annum as Canadian insurers have paid out close to or more than $1 billion for losses of $25 million or more every year since 2009.

The total of such losses (2009 to 2014 inclusive) exceeds a whopping $8.52 billion, not including claims adjustment expenses. This is what has come to be known as ‘the new normal’ for Canada.

This doesn’t necessarily mean that the year’s losses were like previous years’, though in many ways they were.

What generally happens in any given year in Canada is that you get one big loss and a number of other losses of various sizes, with the total closing in on or exceeding $1 billion (the exception, again, was 2013, when the country experienced an unprecedented two billion-dollar events and a $225 million ice storm).

This formula was true of 2014, where the single big loss was a hailstorm in Airdrie, Alberta. Insured losses from that event currently exceed $450 million.

The difference between 2014 and other recent years is that the remainder of the events (there were five in total that were classified as cat events last year) were quite small, with the second largest barely exceeding $100 million. The year was like death by a thousand (well, five) cuts.

It’s important to note that the numbers above reflect only those losses that meet or exceed $25 million insured, and do not include smaller events or isolated day-to-day losses (a sewer backup here, a tree on a house there). These losses can easily add another $1 billion or so to the pile.

So when it comes to catastrophe losses, it’s important to maintain perspective and to be careful of comparisons, especially when statistical outliers are involved.

2014 was not a horrendous year for catastrophe losses in Canada, but it was significant nonetheless.