With the potential for ‘peak year’ insured losses to exceed $300 billion, the Swiss Re Institute has emphasised that the reinsurance sector, supported by $500 billion in capital, is crucial for absorbing large shocks.
While losses from secondary perils remain substantial, Swiss Re noted in a new report that primary perils, such as hurricanes and earthquakes, continue to pose the greatest risks, potentially driving insured losses of $300 billion or more in a peak year.
“Peak years, due to a few primary-peril events or the accumulation of both secondary-peril and primary-peril events, should not be considered an anomaly,” the firm said.
Swiss Re continued, “The most recent peak year was 2017, driven by Hurricanes Harvey, Irma, and Maria. Since then, underlying risk has increased continuously with economic and population growth as well as urban sprawl, including in areas vulnerable to natural catastrophes. In addition, climate change effects are playing a role in compounding losses for some weather perils and regions.”
Balz Grollimund, Swiss Re’s Head of Catastrophe Perils, said, “Our recent analysis of over 200 in-house models and the loss trend over the last 30 years show what is at stake: When a severe hurricane or a major earthquake hits an urban area in a country with significant insurance take- up, insured losses could easily reach USD 300 billion in that year.”
With this in mind, Jérôme Haegeli, Swiss Re’s Group Chief Economist, highlighted the importance of close collaboration between the public and private sectors, noting that it is essential for implementing effective protection measures to reduce losses.
“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 its role for future peak years,” Haegeli continued.
Urs Baertschi, CEO Property & Casualty Reinsurance at Swiss Re, added, “In addition to helping clients with traditional risk transfer, reinsurers also provide data, risk insights and knowledge about where dangers lie.
“The reinsurance industry is a shock absorber when danger materialises into disaster and an essential discussion partner around risk awareness and risk prevention.”
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