Natural catastrophes and climate change

Natural catastrophes are a key risk in our Property & Casualty (P&C) business. The damage caused by floods, storms, earthquakes and other natural catastrophes can affect millions of lives and the economies of entire countries. Following a relatively benign first half of the year, the second half saw a number of natural catastrophes, contributing to make 2018 the fourth-costliest year for the insurance industry according to the Swiss Re Institute.

Swiss Re’s estimated combined claims from natural catastrophes were USD 2.2 billion in 2018.

These figures underline the significant benefits that access to effective re/insurance protection against natural catastrophes creates for our clients and for society at large. In 2018, our clients in P&C Reinsurance paid us USD 2.3 billion of natural catastrophe premiums (for losses larger than USD 20 million), equivalent to approximately 14% of total premiums in this business segment.

Even before 2017 and 2018, both economic and insured losses caused by natural catastrophes had steadily increased on average over the past 20 years. The main reasons are economic development, population growth, urbanisation and a higher concentration of assets in exposed areas.

A typhoon approaching Japan. Natural catastrophes and the impact of climate change are key risks in our core business.

This general trend will continue. But crucially, economic losses will be further aggravated by climate change. The scientific consensus is that a continued rise in average global temperatures will have a significant effect on weather-related natural catastrophes. According to the the Fifth Assessment Report (AR5, 2014) and the Special Report on Global Warming of 1.5 °C (SR15, 2018), published by the Intergovernmental Panel on Climate Change (IPCC, www.ipcc.ch), a changing climate gradually leads to shifts in the frequency, intensity, spatial extent, duration and timing of extreme weather events.

If climate change remains unchecked, the makeup of the main drivers will thus gradually shift, with climate change accounting for an increasingly large share of natural catastrophe losses.

To assess our Property & Casualty business accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the effect of climate change. This is why we invest in proprietary, state-of-the-art natural catastrophe models and regularly collaborate with universities and scientific institutions.

While the impact of climate change will increase gradually over the coming decades, most of our business is renewed and repriced annually, and our risk models are refined every few years. Risks are normally covered for 12 months (up to five years for cat bonds). Thus, re/insurance premiums do not reflect expected loss trends over the coming decades. Rather, for underwriting and risk management purposes, our models provide an estimate of the current risk. But as natural catastrophe losses continue to rise as a result of the different factors listed above, our models will gradually factor in this trend.

In addition to providing re/insurance covers, we offer our clients strategic expertise and integral risk assessments of natural disasters and climate adaptation. These include free access for our clients to Swiss Re’s CatNet® tool (swissre.com/reinsurance/property-and-casualty/solutions/property-specialty-solutions/catnet.html), which includes our recently launched Global Storm Surge Zones service, and our expertise publications.