CAT 154

CAT 154

Ken Brownlee

Copyright © 2021 Ken Brownlee

All rights reserved

First Edition

NEWMAN SPRINGS PUBLISHING

320 Broad Street

Red Bank, NJ 07701

First originally published by Newman Springs Publishing 2021

CAT 154 is a work of fiction, and except for places such as towns or universities, the situations described are totally from the imagination of the author. Any resemblance to actual persons or events is unintended. While both the Underwriters Catastrophe Registration Bureau and the International Reinsurance Alliance are fictional organizations, the subject of the book, terrorism in opposition to environmental science and the cost of climate-change disasters on the insurance and reinsurance industry is real. This is a story about the personal lives of those who report such catastrophes to the insurance industry so that its reserves will be adequate.

ISBN 978-1-63692-506-6 (Paperback)

ISBN 978-1-63692-507-3 (Digital)

Printed in the United States of America

Table of Contents

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13

Chapter 14

Chapter 15

Chapter 16

Preface

Touching the Adventures and Perils which the Under Writers are contented to bear and take upon themselves, they are of the Seas, Men-of-War, Fire, Lightning, Earthquake, Enemies, Pirates, Rovers, Assailing Thieves, Jettisons, Letters of Mart and Counter-Mart, Surprisals, Takings at Sea, Arrests, Restraints and Detainments of all Kings, Princes and Peoples, of what nation, condition or quality soever, Barratry of the Master and Mariners and of all other like Perils, Losses and Misfortunes that have or shall come to the Hurt, Detriment or Damage of the Vessel, or any part thereof, [excepting, however, such of the foregoing perils as may be excluded by provisions elsewhere in the Policy or by endorsement thereon].

This is how the Lloyd’s Ocean Marine Policy read in the seventeenth century, and still reads in the twenty-first. It encompasses and envisions the perils of the sea and all like causes of loss and damage, what we today call disasters and catastrophes. Spreading of risk among a large number of similar exposures allows insurers to accept risk and pay loss, if covered.

Hurricanes, forest fires, explosions, terrorism, floods, tornadoes—all these catastrophes are what keeps the Underwriters Catastrophe Registration Bureau in Topeka, Kansas, busy twenty-four-hours a day. Their agents are trained in meteorology and environmental sciences and keep the insurance industry aware of losses that have been incurred but have not yet been reported.

This story is about one aspect of the spreading of risk called reinsurance, a process by which domestic insurance companies can lay off a portion of their risk to reinsurers, often by a treaty or facultative contract, so that larger portions of the initial risk can be insured.

Disasters have always happened; catastrophic loss is not something new. One catastrophe is new: the horrors that can arise if we fail to control the changing climate. That too is what this book is about. Ultimately, we all pay for catastrophic loss, through our taxes, our insurance premiums, and even in the air we breathe and the water we drink.

Global Warming is a Hoax!

—Donald J. Trump

Chapter 1

September 3

7:23 p.m. EDT (Eastern Daylight Time)

Studios of WKWA Radio, Key West

[A]nd the House voted along party lines for the new legislation, so it is not expected to become law anytime soon. Now, here’s Fred with the latest weather.

"Jim, I don’t believe you’ll need much more than your bathing suit this weekend. But looking down the road, the National Weather Center in Miami is getting concerned about that tropical depression forming east of the Leeward Islands and NOAA, the National Oceanic and Atmospheric Administration, is sending a plane to measure the wind speeds and pressure. If it continues to develop to tropical storm strength, it will be named Hildegard. Of course, after the hits from Faye and Gerhardt late last month, there’s not much more damage another hurricane in such short order can inflict on us in the Keys. Miami thinks it will pass over the Virgin Islands, Northern Puerto Rico, and Western Cuba before swinging up toward the Lower Keys, possibly as early as next Wednesday. So we could be in for a bit of a blast by the middle of next week. Otherwise, westerly breezes are a balmy sixteen knots, and the current temperature here in Key West is seventy-nine degrees. Good boating weather. Joe, how did the Miami Marlins do this afternoon?"

For businesses and residents of Key West, news of yet another hurricane headed for the southern tip of Florida was not good news. Faye had been relatively light, but Gerhardt came through the Lower Keys like an army intent on destruction. Homes and businesses from Long Key to Key West had lost roofs and even walls; debris had piled up on the only access, US 1; and Monroe County engineers anticipated it would take until October or November to get the Keys open for business again. Hildegard would not be a welcome guest.

Gerhardt had clobbered the Keys, then both storms had entered the Gulf of Mexico, where the warm waters strengthened them into Category 4 hurricanes before Faye hit Galveston and Gerhardt hit Fort Walton Beach, doing extensive damage to a range of over a hundred miles in either direction and northward. It was early in the hurricane season, but it seemed that storm season was coming earlier each year and lasting longer.

September 4

10:12 a.m. CET (Central European Time)

International Reinsurance Alliance Conference, Bern, Switzerland

As you can see from the charts, copies of which are in your folder, George Schwingler, president of the Frankfort International Reinsurance Company, said in German, the combined surplus and currency reserves for the forthcoming year are at the lowest level since the twentieth century. Payouts have never been higher. The combination of events such as was experienced last year could not now be adequately managed. United States losses alone totaled nearly four hundred billion, with three major hurricanes and resulting flooding, plus those West Coast forest fires and subsequent mudslides, not to mention all the tornadoes and pollution losses. And none of our net-life reinsurers have yet to fully recover from the 2020/2021 coronavirus pandemic. Madame Chairman, I strongly recommend a fifty percent limitation on any new American treaties and a sixty percent premium increase on all US coverages.

Schwingler was among the world’s top reinsurance analysts watching over a part of the insurance industry that was crucial for all of the world’s insurance industry, where they could reinsure themselves against catastrophic losses that had not been anticipated in what they charged their client insurers. Some in the industry were on the verge of panic due to the number of new catastrophic disasters(called CATs) occurring, especially in the United States, with forest fires, tornadoes, hurricanes, drought, floods, blizzards, and hazardous material spills.

I think it is far too early to make such drastic recommendations, George, responded Ian Pemblinger, one of the representatives for Underwriters at Lloyd’s, London, also speaking in German. While our syndicates agree that the past three years have caused a severe underwriting loss, both in America and Australia, we have also noted that the profit from one or two years of normal risk can more than stabilize the balance, and it is unlikely that, even with the evident climatic changes being experienced in this century, will it mean that there will not be occasional low-loss years in the cycle? Even our combined loss ratio of claims and expenses barely touched 90 percent last year.

What ‘normal risk,’ Ian? Schwingler asked. Even your UK losses are far higher than normal in the last two years, and now that you’ve left the European Union—

Be that as it may, gentlemen, replied Dr. Amy Baxter, chief executive officer of New American Reinsurance Company and chairman of the International Reinsurance Alliance, our American insurer clients find that they must lay off an increasingly higher amounts of risk each year, and US losses will soon be affecting the world markets negatively. She spoke in English, knowing that the other members of the alliance fully understood. The major US storms last year, two of which ravished the Mid-Atlantic Coast and Northeast plus the forest fires in California and other Western states that demolished thousands of homes, have caused our domestic insurers to underwrite restrictively and to reinsure at increasingly lower percentages of assumed risk. They, in turn, pass that on to us in the reinsurance and international market.

Granted, the US losses in recent years have been horrendous and unforeseen, Schwingler stated in English, but what has the American insurance industry done to encourage your Congress to address ways to reduce these risks? Europe and Asia pay the price for America’s failure to take effective action to reduce exposures. Our biggest payments are not going to Asia, Africa, or even European countries, but to the United States! Now there have been two more storms that hit your Gulf Coast. It cannot go on like this!

Perhaps, Baxter answered, but the problem is complex, as much of the action that must be taken is state, not federal, in scope, especially forest management and zoning for new home construction in the vulnerable valleys of California and the low-lying coastal areas—

Your forest fires are also occurring on federal lands, our research shows, Schwingler interrupted. Then continued arguing, The fires in urban areas destroy hillside vegetation, then the rain brings mudslides. Your previous president placed totally unqualified politicians at the head of the departments that oversee those federal lands and forests, and they eliminated many of the earlier safeguards put in place by earlier administrations that might have helped to prevent some of the loss. Accepting American risk is too expensive, and—

George, we all understand that. And I agree that the former administration did more harm than good, cutting a lot of the regulatory agencies and their staff budgets. The United States Emergency Management Agency is literally broke. And it is the only fallback that the states, under the American system of government, has for fire, flood, and storm relief. Is any represented company here reinsuring the National Flood Insurance Program?

A show of hands demonstrated that only a few of the member companies had such treaties.

We did, Marcel d’Ochree of Reinsure Paris said. Then he added, And we paid dearly for the pleasure, even with a very high retained level and premium. The US Gulf and Atlantic Coasts are simply uninsurable by any reasonable standard, both for wind or flood and especially for any form of pollution. That entire coast, from Mexico to South Florida and on up north of Boston, needs to be either abandoned or restricted for property insurance of any sort.

You can’t abandon the ports! Schwingler interrupted. Boston? New York? Houston? Ridiculous!

That may be a long-term solution, Pemblinger agreed. "The Deep Water Horizon loss cost both our marine and environmental liability syndicates millions of pounds, despite a quick response. We cannot assume any further such risks, yet the US administration wishes to expand off-shore drilling."

That is unacceptable! exclaimed Cho Wie Ling, chairman of the People’s Insurance Company of China Reinsurance Services, speaking in English. We will take on no American or Australian risk this year, no matter how high the premium rates. Our members are still recovering from the March 2011 Fukushima Daiichi tsunami and nuclear plant disaster in Japan. The US is just as vulnerable to such a catastrophic loss.

The debate continued for another hour. US reinsurers, according to the statistics in the reports provided to the members, had suffered the highest combined loss ratios—a combination of amounts already paid as claims and claim expenses and the reserves set for future such payments within the policy year—but many of the European reinsurers had many more billions of dollars tied up in actual and incurred but not [yet] reported (IBNR) claim and expense reserves. The representative from India had already advised that his member companies would not touch any flood or disease risk in Bangladesh, other Asian countries or Africa and the war and political unrest risks subcommittee had agreed on exclusions for any losses in the Middle East, including Israel, Japan, the Korean Peninsula, and certain Latin American countries.

There was, among the delegates and individual reinsurance company representatives, virtual unanimous agreement that the major cause of the disasters that were costing the most were the result of unarrested global warming due to greenhouse gases and overpopulation in Asia, Africa, and Latin America. A number of delegates had spoken negatively about the US’s initial withdrawal, years earlier, from the Paris Climate Control Accords; but with the large contingent of US reinsurers present, few openly hostile comments actually entered the notes being recorded by the Alliance secretary now that the US had rejoined the Accords.

Fredrick Saunders, CEO of the American Association of Personal Lines Insurers, made two comments that seemed to stir more anger at American insurers. First, remember that the polar vortex that shifted the jet stream and frigid air south from the Arctic last year has affected all of North America as well as Europe and Asia. The Arctic ice is melting at a much faster rate. That vortex could change quickly, with the UK, Scandinavia, and Russia becoming the winter storm center for a decade or two. And further—

That is not what the scientists predict, interrupted George Schwingler.

Perhaps not, but Europe is vulnerable to freezing blizzards, and the Western Pacific islands and coast are just as vulnerable to the cyclonic storms as is America, Saunders replied. Some of the worst typhoons in history have occurred in the Pacific this decade.

Ian Pemblinger responded with a laugh, But who is writing insurance on most of those places? The low-lying islands are uninsurable as sea levels rise. It is the Americans that are building on their vulnerable coastlines and in their mountains and hills, expensive mansions, and doing nothing to discourage the insuring of these high risks or seeking laws that would restrict the creation of such risks, whether they meet the building codes or not.

I might add, said George Schwingler, "that the American Insurance Information Institute, which has generally accurately reported on such things, tells us that over one hundred billion—that’s billion—US dollars are lost each year to fraud. Now, granted 70 percent of that is in the life and health insurance business, perhaps largely governmental loss, yet with thirty billion or more in property and casualty claim fraud, we must ask what the American insurance industry is doing to control it.

Do they no longer investigate claims before issuing their checks, and passing the loss onto the reinsurers? I was in New York recently, and there was nothing on television except advertisements for trial lawyers. ‘You too can make millions dollars if you’ve been injured in an accident!’ Your insurers advertise only on the basis of low premium prices. How can they do that if they are paying claims honestly?

Amy Baxter looked down at her folder, which contained a copy of the AIII report, before responding. Sure, fifty years ago an insurer could afford to investigate every claim with personal contacts and independently verify every fact, but now there are over three times as many claims, and there are insufficient resources, so—

So? Schwingler abruptly interrupted. So you are saying that your US insurers find it simpler to just pay demands than to investigate whether the coverage applies, whether there is liability, or what the damages really are? That’s ludicrous! How many trained claims adjusters do you think your companies could hire and train for even 10 percent of that one hundred billion? NO! Some loss preventive action is needed!

George, I don’t disagree, Baxter replied. But the fact is that, every new catastrophic loss ties up the most experienced claim adjusters, and the claims offices end up hiring temporary personnel to—

’Temporary personnel!’ Schwingler exploded again. No wonder billions of dollars are being wasted. I suppose they are relying on computer software to figure out what and whom to pay? Does the computer ever go out and inspect the damage or obtain statements from the insureds or claimants that could be challenged in court? You Americans are litigious enough—so many lawyers advertising on your television that they can get a client millions because they’ve been in an accident, with no real proof that the person was ever injured.

Marcel d’Ochree raised his hand to interrupt Schwingler’s rant but surprisingly started by informing Baxter that he and other representatives all agreed that losses in the United States were by far more serious and expensive than elsewhere in the world.

Our losses are not coming from war risk or terrorism coverages, even though it is war in the Mideast that has created a far higher amount of damage in the past five years than domestic loss. Fortunately, that war damage was uninsured. Certainly, the growing number of terrorist attacks in France and elsewhere in Europe have created insured loss, but it is minor compared to the disasters that are now commonplace in America. And after your previous government reduced or eliminated many of the laws and regulations that helped to prevent loss, I must agree with George that we have little choice but to restrict how much of US risk we can assume and that we must raise the price of accepting such risk until this new administration restores sanity to the national risk base.

He continued, "How long will it be until another Deep Water Horizon oil spill event strikes your Atlantic or Gulf coasts, Amy, and we end up shelling out euros for the fishing and tourist industry—and half or more of those claims being of questionable validity?"

Amy Baxter again looked down at the folder details, then glanced at George Schwingler as she asked, George, what is the current total reinsurance expected loss for this year, including the incurred but not yet reported estimates?

Our actuaries anticipate somewhere in the range of ten to twelve hundred billion euros for the current premium year. Almost 60 percent of that is allocated for US losses. We can only hope and pray that such large losses will not occur, for the collective surplus of all German reinsurers is only within two percentage points of their estimated share.

The discussion of the Alliance exposures went on for another hour before the attendees broke up into smaller groups based on the types of risks reinsured. By lunch, disagreements on how to proceed were being waged at most of the tables in preparation for the afternoon session. Representatives of nine US reinsurers discussed among themselves what would happen if world capacity were to be cut in half and premiums increased in the international market.

Would American insurers accept the higher level of risk that would be thrust upon them by such actions? It would have to be passed along to the policyholders. Would state insurance regulators, a political position in virtually all the jurisdictions, approve the higher rates that domestic insurers would have to charge to pay for higher-cost reinsurance? What impact would the new limitations and premium increases have on the national health insurance market?

Perhaps, suggested Walter Haskins of Global Casualty, the changes would result in support for a universal medical insurance system in the United States such as those operating in much of the rest of the world.

The other Americans disagreed. The response was a question of who would reinsure that. None of them were looking forward to the afternoon session.

Chapter 2

September 5

5:25 p.m. Central Daylight Time

Office of the Underwriters Catastrophe Registration Bureau

Topeka, Kansas

Bill Whitaker sat in his comfortable revolving chair at his desk that afternoon. The UCRB office was located in a small block building with one window on a remote part of the campus of Washburn University in Topeka, Kansas. Bill was more or less the senior agent (officially, an associate) for the Bureau, only because he had been with it since his undergraduate days at the University of Kansas (KU) as an environmental science and actuarial major, taking graduate courses toward his PhD. Now that he was an active doctoral candidate, he met regularly with the Environmental Sciences Department’s professors who were reviewing every step of his dissertation. Bill was a tall, sandy-haired good-looking man of twenty-eight, single, and had grown up in suburban Kansas City. He had a military presence from his Air Force days and was now a major in the Kansas Air National Guard.

The Underwriters Catastrophe Registration Bureau (UCRB) had been a 1990 creation by the various organizations of North American insurance and reinsurance companies and some self-insuring entities. The bureau’s responsibility was to monitor weather-related and any other type of insurable accidental loss or disaster and to give an advance report and data on any such losses that were anticipated to exceed two and a half million US dollars in insurable direct or indirect loss. The Bureau was a very minor operation funded by the insurance and reinsurance industry as an advance alert system for disasters. Although vital to the industry, it was not well-funded, relying primarily on graduate students willing to work long hours for little pay for the prestige of the responsibilities.

Each such new loss was given a number, consecutively issued annually, as a CAT, for catastrophe. The numbers were logged in and would generally retain the same CAT number unless some new type of peril arose out of the original CAT, such as a hurricane causing a ship sinking. When such a CAT was identified, the UCRB’s computers would identify all the insurance companies, stock, mutual or reciprocal, or self-insured corporations or governmental agencies that could potentially be exposed by the CAT and send an automatic alert with whatever information the UCRB had at that moment, with frequent updates as the severity of the CAT became known. The system also sent an automatic alert to reinsurance companies around the world to alert them to the potentials of the CAT. This allowed the insurers and reinsurers to establish incurred but not yet reported (IBNR) reserves, awaiting the actual claims that might take weeks or months—or even longer—to develop.

Bill was considered by some of the other bureau employers as almost a fanatic about ecology and the environment, driving a small, used electronic Chevrolet Volt to his tiny apartment near the Washburn campus and to his twice-a-week classes in the graduate division at KU. He occasionally dated one of the coeds he’d met on campus, but had no regular girlfriend, as far as the others knew. They considered him too serious to have any fun spending time with girls. He said he had some distant relatives in Arkansas, but didn’t keep in touch with them, and if he had other family, none of the other employees heard about them or his deceased parents.

The only other activity that took any of his time was his standing as a major in the Kansas Air National Guard, which required biweekly meetings and one day a month at nearby Forbes Field, a semiretired USAF base taken over by the National Guard and the AF Reserves as well as civilian general aviation. As a weather specialist, there was not much call for his duties beyond providing ground wind and temperature figures for the FAA tower traffic controllers whenever he was on duty. Still, he was subject to call-up for active duty by either the US Air Force or the Kansas Air National Guard by the Kansas governor.

Jack Sparks had arrived early for his shift, which was