Natural catastrophes and climate change
Natural catastrophe premiums in our P&C Reinsurance business
(USD 2.6 billion in 2015)
Natural catastrophes are a key risk in our Property & Casualty (P&C) business. The damage caused by floods, storms, earthquakes and other natural disasters can affect millions of lives and the economies of entire countries. In 2016, the total worldwide economic losses from natural and man-made catastrophes were estimated at USD 175 billion – of these, USD 54 billion were insured. Having access to effective re/insurance protection against natural catastrophes creates significant benefits for our clients and for society at large. In 2016, we received USD 2.5 billion of P&C Reinsurance premiums for natural catastrophe covers (for losses larger than USD 20 million), which was equivalent to approximately 15% of total premiums in this business segment.
On average, both economic and insured losses caused by natural catastrophes have increased steadily over the past 20 years. The key reasons have been economic development, population growth, urbanisation and a higher concentration of assets in exposed areas.
This general trend will continue. But crucially, 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 Special Report on Extremes (SREX, 2012) and the Fifth Assessment Report (AR5, 2014), 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.
A coastline in the US being battered by a hurricane. Understanding the impact of climate change on the frequency and intensity of natural catastrophes is vital for our business.
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 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, reinsurance 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 described above, our models will gradually factor in this trend, since they are updated and refined at regular intervals.
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 our Economics of Climate Adaptation (ECA) studies, free access for our clients to Swiss Re’s CatNet® tool and our expertise publications. You can see a sample of our recent publications in Selected publications of 2016 and Other Swiss Re publications.
Natural catastrophe data
In our 2016 Financial Report we provide detailed quantitative information on natural catastrophe perils: the four perils with the highest expected annual losses (see Natural catastrophes and climate change) and the liquidity requirements stemming from four extreme loss scenarios (“insurance risk stress tests”, see Insurance risk).
CatNet®: free natural hazard information for our clients
CatNet®, Swiss Re’s online natural hazard atlas, makes regions’ risk profiles visible. Clients can view these profiles in maps that are complemented by a geographical database with detailed information on natural hazards such as earthquakes, tropical cyclones, winter storms, tsunamis and floods. CatNet® thus provides a professional overview and assessment of risk exposures across the globe, quickly and easily.
We completely overhauled our CatNet® tool in 2016. It is browser-based and available free of charge to our clients. You can find more information by visiting swissre.com/catnet