Insights

Swiss Re estimates that 2021 will be the fourth most costly natural catastrophe year on record

Posted 22.11.2021 – Quick takes

Swiss Re published its annual outlook for the global insurance industry on Thursday. The Swiss Re Institute expects global insurance premiums to grow by 3.4% in real terms in 2021, 3.3% in 2022 and 3.1% in 2023. This would see the global insurance market premiums exceed US$7 trillion for the first time by mid-2022. The Swiss Re Institute also sees global insurance industry profitability supported by heightened risk awareness in wake of COVID-19 and continued rate hardening.

Swiss Re estimates that natural catastrophe losses, given above-average activity throughout 2021, will be in excess of US$100bn. This would make 2021 the fourth-costliest year on record for the insurance industry (after 2005, 2011 and 2017). Swiss Re estimates that US Hurricane Ida in August will cost insurers US$28-30 billion from wind, storm surge and inland flood damage in Louisiana and across the southeast. This impact was exacerbated by flooding along the eastern seaboard and in the northeast of the US. This is on the lower end of the loss estimates we have seen for Hurricane Ida. As we reported previously, loss estimates have generally risen since initial reports with some modelling companies suggesting insured losses could be over $40bn.

In February, winter storm Uri caused insured losses of US$15 billion, a record for this peril, from wind damage and burst pipes. Severe multiple failures of the Texas power grid played a big contributing role in the losses. Swiss Re believes that with more extreme weather events anticipated from climate change, substantial investment in hardening critical infrastructure is needed.

Swiss Re is forecasting that flood will be the peril that increases the most as a result of climate change, in particular pluvial flood (from both thunderstorms and tropical cyclones). Europe’s flooding in July as the result of Storm Bernd was the costliest of all European natural catastrophe on record, with close to US$12 billion estimated insured losses. Swiss Re estimates that the wider economic losses of the flood may reach US$40 billion.

Alpha comment: the scale of the natural catastrophe losses in 2021 underlines Alpha’s consistent view that significantly more rate is required across the property lines – particularly for treaty and retrocession. As such, we remain hopeful that we will see continuing premium hardening at 1/1 and throughout 2022. As a reminder, much of the Winter Storm Uri loss falls back onto the 2020 year of account whilst Hurricane Ida mostly remains in the 2021 year of account. Alpha members’ portfolio forecasts for 2020 are currently looking positive and we are still expecting our average members’ portfolio to be profitable for the 2021 year of account.

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