Insured losses could double within next ten years: Swiss Re sigma

According to global reinsurance firm Swiss Re, the occurrence of medium-severity insured loss events has risen by 7.5% since 1994, at almost double the 3.9% increase in catastrophes generally, and the company warns that insured losses could double within the next ten years.

In the reinsurance companies latest sigma report on natural catastrophe losses, Swiss Re continues to peg the 2023 total for insured catastrophe and man-made disaster losses at US $108 billion, with $100 billion coming from natural catastrophe events.

It is frequency that is the main driver of insured loss accumulation, Swiss Re notes, with severe convective storms (SCS) driving some US $64 billion of the 2023 total, 85% of which were in the United States.

The reinsurer notes that severe convective storms (SCS) losses are actually growing fastest in Europe though, which is something to watch out for in reinsurance capital markets.

Swiss Re has said before that climate change-induced hazard intensification is likely to increas losses in the future, making adaptation critical.

The US $108 billion insured catastrophe loss total for 2023 reaffirms the 5–7% annual growth trend in global insured natural catastrophe losses since 1994, the reinsurer said.

But today, Swiss Re also added that, “Swiss Re Institute estimates that insured losses could double within the next ten years as temperatures rise and extreme weather events become more frequent and intense,” which is a stark warning and a reminder for reinsurance and risk capital providers that loss costs must get priced for.

Insured losses from natural catastrophes is outpacing economic growth, as inflation-adjusted insured losses from natural catastrophes averaged 5.9% over the last 30 years, while GDP grew by 2.7%, Swiss Re explains.

“In other words, over the last 30 years, the relative loss burden compared to GDP has doubled,” the reinsurer said.

Jérôme Jean Haegeli, Swiss Re’s Group Chief Economist, commented, “Even without a historic storm on the scale of Hurricane Ian, which hit Florida the year before, global natural catastrophe losses in 2023 were severe. This reconfirms the 30-year loss trend that’s been driven by the accumulation of assets in regions vulnerable to natural catastrophes. In the future, however, we must consider something more: climate-related hazard intensification. Fiercer storms and bigger floods fuelled by a warming planet are due to contribute more to losses. This demonstrates how urgent the need for action is, especially when taking into account structurally higher inflation that has caused post-disaster costs to soar.”

Moses Ojeisekhoba, Swiss Re’s CEO Global Clients & Solutions, added, “As weather hazards intensify due to climate change, risk assessment and insurance premiums need to keep up with the fast-evolving risk landscape. Looking ahead, we must focus on reducing the loss potential. 2023 was the hottest year on record, and the start to 2024 is following suit. Keeping property insurance sustainable and affordable requires a concerted effort by the private industry, the public sector and broader society – not just to mitigate climate risks, but to adapt to a world of more intense weather.”

2023 was marked by a record 142 events that surpassed the Swiss Re sigma reporting thresholds for insured losses.

The majority were medium-severity, Swiss Re explapined, with losses of between US $1 billion and $5 billion.

“There were at least 30 such events in 2023, many more than the previous ten-year average (17). Of those events, 21 were SCS, a new high. The number of these medium-severity events has grown by 7.5% since 1994, almost double the 3.9% increase in catastrophes generally,” the reinsurance firm said.

Severe thunderstorms are second only to tropical cyclones in loss-making now, due to exposure growth, urbanisation, economic growth and population expansion.

But, hailstorms are the largest contributor to insured losses from SCS events, driving between 50% and 80% of the total.

“SCS-related insured losses were fastest-growing in Europe, exceeding USD 5 billion in each of the last three years. Hail risk in particular is increasing, mainly in Germany, Italy and France,” Swiss Re highlights.