Managing climate and natural disaster risk

Losses from floods, storms, earthquakes and other natural catastrophes can have a dramatic impact on the citizens and economies of entire countries. Insurance helps people, businesses and societies to get back on their feet after disaster strikes.

Although insured losses from natural catastrophes were lower in 2015 than in recent years, the number of events was among the highest ever recorded. The expectation is that, as a result of climate change, extreme weather events like hurricanes and floods will increase. Moreover, the economic losses from such events are also expected to rise given a higher concentration of assets in exposed areas. If no action is taken, climate change could cost the world economy an estimated 20% of global GDP by the end of this century.

By financing measures to mitigate disaster risks and adapt to climate change, we can strengthen the resilience of businesses, local and national economies and societies. As insurance puts a price tag on risk, it helps to create an incentive to invest in prevention measures.

Understanding natural catastrophe risks and the impact of climate change is critical to cost our business accurately and to structure sound risk transfer solutions. By sharing this knowledge, we help our partners to identify cost-effective measures to protect themselves. In addition, we provide solutions to cover the residual risk that cannot be avoided.

Our notable achievements in 2015:

  • We provided our research and expertise for the COP21 Climate Change Conference (www.cop21.gouv.fr) in Paris in December 2015 and were personally represented by our Group CEO (see “Swiss Re’s contribution to the COP21 Climate Change Conference”);
  • We continued to share our data on the potential impact of major natural catastrophe events on cities. Following on from last year’s publication “Mind the risk: a global ranking of cities under threat from natural disasters”, we extended our “Risky Cities” series in 2015, providing more detailed data for Istanbul and Bangkok;
  • We launched a “Flood Focus” series of publications starting with Vietnam, released “Four earthquakes in 54 days” and an updated version of “Closing the protection gap”.

The impact of climate change on sovereign ratings

In 2015, we partnered with Standard & Poor’s in a special project to quantify the impact of natural catastrophes and climate change on sovereign ratings. Based on a sample of 38 countries, our simulations indicate that natural disasters (earthquakes, tropical storms, floods and winter storms) of a severity that is likely to occur once every 250 years can indeed weaken the affected sovereign’s rating.

Moreover, we found that climate change can be expected to increase this impact by 20% on average. The expected effect is strongest in emerging countries and especially in the event of earthquakes and tropical storms. The most severe of these disasters could lead to a downgrade of around 1.5 notches. However, our joint study also found that this potential effect can be significantly reduced by catastrophe insurance.