Loss Trend

There has been considerable and increasing debate during the last few years about the extent to which climate change exacerbates the volatility of insured losses arising from natural catastrophes. An excellent Howden report ‘Climate in Peril’ articulates well the scientific evidence and its link to the recent empirical nat cat loss experience. Commentary and debate extends to whether nat cat models adequately capture the full range of nat cat risks they are intended to represent.
In light of 2022 likely representing another above average year for nat cat, we have reproduced and extended market loss studies into the recent two decades of global, insured natural catastrophe losses to address these questions.

1. Natural catastrophe losses

It is commonly accepted in the scientific and insurance communities that the last twenty years has seen an increase in insured losses from natural catastrophes. Figure 1 shows this split between ‘weather’ perils and all other.

For the purpose of this article, we have divided this period into two halves to show that over the most recent period (2012-2021) the average annual global insured nat-cat loss was $70bn, 23% higher than the average from the previous period (2002-2011), $57bn.

Two questions immediately arise. Firstly, to what extent can these increases be considered wholly or partly due to climate change? And secondly, are the causes of insured loss now adequately captured within the widely available natural catastrophe models such that (re)insurers with material exposure can use them with confidence?