Swiss Re: Peak year industry cat losses could reach $300 billion

By Rebecca Delaney

April 29 - (The Insurer) - A "peak year" of hurricane and earthquake activity could drive annual insured natural catastrophe losses to $300 billion, new model analysis by Swiss Re Institute has found.

Global insured natural catastrophe losses have followed a long-term annual growth trend of 5% to 7%. Based on this trend, global insured losses may reach $145 billion in 2025, Swiss Re said, predominantly driven by perils traditionally deemed as secondary.

However, Swiss Re warned in its analysis that primary perils continue to pose the most significant risks to insurers.

In the event that a severe hurricane or strong earthquake hits a densely populated urban area, insured losses in that year could be more than double the long-term loss trend, the reinsurer said.

Based on model analysis of more than 200 in-house models and loss trends over the last 30 years, Swiss Re estimated that hurricanes and earthquakes could drive global insured losses to $300 billion or more in a peak year.

Swiss Re cautioned that peak years (which are due to a few primary peril events or the accumulation of both primary and secondary peril events) should not be considered an anomaly.

The most recent peak year was 2017, driven by hurricanes Harvey, Irma and Maria. Since then, underlying risk has continuously increased alongside economic and population growth, as well as urban sprawl. Some weather perils and regions have also seen the effects of climate change play a role in compounding losses.

According to estimates by Swiss Re Institute, some of the notable hurricanes from recent years would cause losses "well over" $100 billion if they were to strike today.

For example, when Hurricane Andrew struck in 1992 it caused $35 billion in insured losses at today's prices. But Swiss Re estimated that a hurricane on the same path today would cause losses nearly three times higher owing to economic and population growth and urban sprawl.

On the other hand, estimates indicate that Hurricane Katrina would not cause the same destruction as 20 years ago. While insured losses would still reach around $100 billion due to rising housing and construction costs, improved flood defences and a 20% decrease in local population along Katrina's path have significantly reduced exposure.

U.S. INSURANCE CLAIMS COSTS DRIVEN BY NAT CAT EXPOSURE

Swiss Re added that while loss severity is rising globally, the U.S. accounted for almost 80% of industry catastrophe losses in 2024 owing to vulnerability to severe thunderstorms, hurricanes, floods, wildfires and earthquakes.

The report continued that while insurance premium rates are informed by many factors including local regulations and inflation, over the long term, the main determining factor is exposure to natural perils.

As natural catastrophe losses continue to rise, Swiss Re has called for greater efforts to reduce loss potential to limit insurance costs and maintain the viability of risk transfer.

"Close collaboration between the public and private sectors is vital for effective protection measures to reduce losses," said Jérôme Haegeli, Swiss Re's group chief economist.

"In addition, a well-capitalised reinsurance sector, backed by $500 billion in capital, acts as a vital shock absorber, helping communities and economies recover more quickly. That is why it is important that capital grows in line with rising risk, for the industry to fulfil their role for future peak years."