Faced with the possibility of “peak year” insured losses exceeding $300 billion, the Swiss Re Institute has suggested that the well-capitalised reinsurance sector, backed by $500 billion in capital, is pivotal to absorb large shocks.While secondary perils continue to generate significant losses, Swiss Re’s latest report highlights that primary perils, such as hurricanes and earthquakes, remain the most severe threat, with the potential to push insured losses beyond $300 billion in a peak year.The reinsurer states that peak years, due to a few primary-peril events or the accumulation of both secondary-peril and primary-peril events, “should not be considered an anomaly”.“The most recent peak year was 2017, driven by Hurricanes Harvey, Irma, and Maria.

Since then, underlying risk has increased continuously with economic and population growth as well as urban sprawl, including in areas vulnerable to natural catastrophes,” the firm added.“In addition, climate change effects are playing a role in compounding losses for some weather perils and regions.” Balz Grollimund, Swiss Re’s Head of Catastrophe Perils, commented: “Our recent analysis of over 200 in-house models and the loss trend over the last 30 years show what is at stake: When a severe hurricane or a major earthquake hits an urban area in a country with significant insurance takeup, insured losses could easily reach USD 300 billion in that year.” Furthermore, Swiss Re’s analysis suggests that some of the hurricanes from the 20th century would cause losses well over $100 billion if they were to strike today According to the reinsurer, Hurricane Andrew, which caused $35 billion in insured losses in 1992, would result in nearly three times that amount if it were to strike the same path today.However, Hurricane Katrina, which still remains the costliest single insured loss event for the re/insurance industry, would not cause the same destruction as it did 20 years ago.

The reinsurer noted that insured losses from the event would still reach around $100 billion today due to rising housing and construction costs, but improved flood defences and a 20% decrease in local population along Katrina’s path have significantly reduced exposure.As nat cat losses continue to rise, the reinsurer states that it is crucial to reduce loss potential from the outset, in order to both reduce the cost of insurance and to maintain the viability of risk transfer business.Jérôme Haegeli, Swiss Re’s Group Chief Economist, said: “Close collaboration between the public and private sectors is vital for effective protection measures to reduce losses.

In addition, a well-capitalised reinsurance sector, backed by USD 500 billion in capital, acts as a vital shock absorber, helping communities and economies recover more quickly.That is why it is important that capital grows in line with rising risk, for the industry to fulfil their role for future peak years.” Urs Baertschi, CEO Property & Casualty Reinsurance at Swiss Re, added: “In addition to helping clients with traditional risk transfer, reinsurers also provide data, risk insights and knowledge about where dangers lie.The reinsurance industry is a shock absorber when danger materialises into disaster and an essential discussion partner around risk awareness and risk prevention.”.

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