Insured losses will once again exceed $100bn in 2023: Swiss Re

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Analysis by Swiss Re, one of the world’s largest reinsurers, reveals that natural catastrophes will once again break several loss records this year, as a high frequency of low single-digit billion-dollar loss events take insurance and reinsurance industry losses above the $100 billion mark for the fourth consecutive year.

Economic losses from both nat cat and man-made events in 2023 is estimated at $269 billion by Swiss Re, which is around 9% lower than in 2022, but above the previous 10-year average of $235 billion. Of this, the large majority, or $260 billion relates to nat cat events, with $9 billion coming from man-made events.

At $100 billion in 2023, the estimated insured nat cat loss total has fallen by 25% year-on-year but is still above the previous 10-year average of $89 billion. Swiss Re pegs insured man-made losses at an estimated $8 billion, which is in line with last year, taking total insured losses for the year to $108 billion, which is lower than 2022’s $141 billion, but again above the 10-year average of $99 billion.

The main contributor of the high level of insured losses is the severe thunderstorm (severe convective storms) peril, with insured losses from these events reaching a new all-time high of $60 billion in 2023.

Swiss Re notes that losses from severe thunderstorms have increased 7% annually in the last 30 years, and 2023 marks an increase of nearly 90% compared to the previous 5-year average of $32 billion, and more than doubles the previous 10-year average of $27 billion.

Severe convective storm (SCS) activity has been extremely elevated in the US during 2023, with $50 billion of insured losses for US SCS activity surpassed for the first time. So far in 2023, the US has experienced 18 events which each caused insured losses of $1 billion and higher.

While more prevalent in the US, insured losses from severe thunderstorms is also on the rise in Europe. Swiss Re notes the impact of these events in Italy in 2023, which experienced losses of over $3.3 billion, which is actually the costliest natural catastrophe-related insured losses ever in the country.

“The cumulative effect of frequent, low-loss events, along with increasing property values and repair costs, has a big impact on an insurer’s profitability over a longer period. The high frequency of severe thunderstorms in 2023 has been an earnings’ test for the primary insurance industry,” said Jérôme Jean Haegeli, Swiss Re’s Group Chief Economist.

Balz Grollimund, Head Catastrophe Perils, added: “For the insurance industry, recent events provide robust benchmarks for estimating the increasing loss trends. Nevertheless, to further progress the deeper understanding of this peril, it is important to get better insights from primary insurers on distributions of insured exposure and detailed claims data. It is equally important that insurance premiums adequately reflect the risk for the coverage provided especially also in light of increasing loss trends.”

Although SCS losses dominate the insured loss total, the costliest individual natural catastrophe event in 2023 is the earthquake in Turkey and Syria, with an insured loss of $6 billion.

Another notable event in the year was Hurricane Otis, which Swiss Re expects to become the costliest insured event in Mexico. Floods and cyclones had a damaging impact in New Zealand, causing the costliest weather-related insured losses ever for the country at $2.4 billion. Wildfires also contributed to the insured loss total again in 2023, with the wildfires in Maui estimated to become the costliest insured loss event ever for the state of Hawaii, at $3.5 billion, according to Swiss Re.

“Urban development, wealth accumulation in disaster-prone areas and inflation are key factors at play, turning extreme weather into ever rising natural catastrophe losses. Rising temperatures are further increasing the risk of severe droughts and wildfires. With 2023 expected to be the warmest year on record, the effects of climate change are becoming apparent,” said the reinsurer.

Swiss Re’s analysis shows that there remains a large protection across the world, as the insurance and reinsurance industry covered just 40% of the overall economic losses this year.

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