The increase in severe weather events, primarily driven by secondary perils such as hail, wildfires, and tornadoes, are set to double the amount of insurance Nat Cat losses over the next decade, according to Karen McDonald, Chief Underwriting Officer for Swiss Re Corporate Solutions.
McDonald was speaking on the Swiss Re Media Dialogue 2024, were she said that the 2017 hurricane season which included the severe storms Harvey, Irma, and Maria, left the industry nursing insured losses of $100bn, had become the new normal.
The Chief Underwriting Officer said that six of the seven subsequent years had seen Nat Cat events with attached losses in the region of $100bn and that Swiss Re anticipated this figure would continue to grow.
“To put that in context, relative to GDP, the natural catastrophe losses in the world have doubled in the last 30 years. But at a five to 7% growth rate, they’re going to double again in the next decade, relative to GDP. And that is a very significant shift that our clients are dealing with,” McDonald said.
Earlier in the presentation Jerome Jean Haegeli, Group Chief Economist at the Swiss Re Institute, said that while the ‘worst is over for inflation’, with the ECB likely to achieve its 2% medium term target for the Eurozone in 2024, price increases in the US would stay above that level until 2025 at least.
SRCC risks rise
McDonald said the continuation of higher than target inflation was a driver of rises in Nat Cat losses. She also pointed to non-Nat Cat loss trends which are combining to increase the price of risk for corporate clients such as geopolitical, regulatory, and litigation risks.
“There are three events that we think really could be meaningful for the industry in the next year; the 2024 US presidential elections, increased China/Taiwan tensions, and the Middle East conflict. All of these come together.
But there’s also a rise in strikes, riots, and civil commotion (SRCC) risk. That is something that has gone up on a frequency basis 30 times versus the last 20 years. This accumulation can be a significant risk topic for some of our clients,” she said.
McDonald said that the global economy was becoming much more multinational, interconnected, and global. She said that while SRCC and geopolitical risks had a variable impact depending on corporates’ location, this posed a threat to supply chains, particularly as the cost of living crisis is driving firms to reassess their cost base.
“Because of the real push for cost efficiencies and the more global nature of many of our clients’ businesses, we’re having conversations about understanding the resiliency of their supply chain, the concentration of where they get all their supplies from, and the risks that those suppliers are exposed to,” she said
According to McDonald, this confluence of factors meant that corporate clients were approaching Swiss Re for a range of climate linked insurance services.
This involves providing assessments of the environmental risks posed by business location in addition to traditional areas of insurance.
Alternative risk transfer
McDonald said that one result of the current risk landscape is that global firms were looking closely at alternative risk approaches when fine-tuning their risk budgets. She said that firms are considering a range of solutions including setting up corporate captives
“How much risk do they want to transfer to someone else? And in what form? Do they want to have a corporate captive? Should they look into parametric, or even access to alternative capital, these issues are top of mind of some clients,” she said.
“The global nature of our world today means that firms really need a seamless management of their risks, in terms of risk mitigation, the risk transfer, and integration with both the underwriting and the claims sides of the business across all of the various countries that they work in,” she said.
Haegeli said in addition to heightened political risk there are still macroeconomic headwinds for the insurance.
“It’s pretty clear that the risks continue to be on the downside with the financial markets priced for perfection”, he said.
Advanced market life insurers
The Group Chief Economist said that the macro environment was positive for the life insurance sector with the return to positive real interest rates – interest rates minus inflation – leading Swiss Re to model premium growth for life insurers.
Haegeli said that advanced market life insurers would be the main beneficiaries of the positive real interest rates and this cohort of carriers would record 50% of global growth over the next decade, a scenario he said was in contrast to recent experience.
“If you compare that to the decade prior to COVID, [advanced market life insurers] only contributed about 9% of global growth, so that increase is a multiple factor of five,” he said.
