Natural catastrophes and climate change

Natural catastrophes are a key risk in our property and casualty (P&C) business. The damage caused by storms, floods, droughts, earthquakes and other natural catastrophes can affect millions of lives and the economies of entire countries. In 2020, natural catastrophe losses were largely driven by the Atlantic hurricane season, which included a record 30 named storms, and numerous secondary perils across the globe.

Providing effective re/insurance protection against large natural catastrophes creates significant benefits for our clients and for society at large. In 2020, our clients paid us USD 4.1 billion of natural catastrophe premiums¹ for natural catastrophe covers exceeding losses of USD 20 million, equivalent to approximately 10% of total premiums.

Worldwide economic as well as insured losses from natural catastrophes were high in each of the past four years but have steadily increased on average for more than 20 years. The main reasons for this are economic development, population growth, urbanisation and a higher concentration of assets and operations in exposed areas.

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 Intergovernmental Panel on Climate Change (IPCC)², 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 P&C business accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the effects of climate change. This is why we invest in proprietary, state-of-the-art natural catastrophe models, developed and advanced by a team of more than 40 scientists, as well as from regular collaboration with universities and scientific institutions.

Based on our research, there is a trend towards increasing losses from secondary perils³. These are often highly localised small to mid-sized events, or a resulting effect of a primary peril that can include hurricane-induced rainfall, storm surge, as well as drought and wildfire outbreaks. We explicitly factor the main risk trends into our modelling to underwrite catastrophe business sustainably and build global resilience.

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 regularly. Risks are normally covered for 12 months (up to five years for catastrophe 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 client access to Swiss Re’s CatNet® tool, which includes our Global Storm Surge Zones service, and our expertise publications. Examples of our publications can be found in the "Engaging in dialogue with our stakeholders" section of our report.

Financial Report: Climate-related financial disclosures (TCFD)

_{¹ In previous years, we reported natural catastrophe premiums for our Property & Casualty (P&C) Reinsurance business only, but switched to Group-wide figures to provide a more complete picture.
² IPCC, Fifth Assessment Report (AR5, 2014) and Special Report on Global Warming of 1.5°C (SR15, 2018).
³ sigma 2/2019}