Industry should now expect average annual cat losses of $151bn: Verisk

Rapid exposure growth and inflationary pressures mean insurers should now expect average annual catastrophe losses of $151bn, according to the latest Verisk Extreme Event Solutions study.

The figure, compiled through the modelling firm’s industry exposure database for the 120 countries it now covers, represents an increase of 13.5 percent on the 2023 study.

Verisk’s average annual loss (AAL) projections for both 2023 and 2024 are significantly above the average industry natural catastrophe losses of $106bn over the past five years, the study highlights.

For the first time since the study was launched in 2012 (when Verisk Extreme Event Solutions was known by its former name AIR Worldwide), the modelling firm has broken out the AAL figure excluding crop, which is $119bn.

Average exposure growth is expected to be 7.2 percent, which includes rising property replacement values from new construction and inflation across modelled countries.

Alongside rapid urban expansion and exposure growth, Verisk attributed the increase in AAL to factors such as an increasing frequency of events, as well as economic and social inflation and the impacts of climate change and variability.

The study found climate change currently accounts for only around 1 percent of the annual increase in losses, although its impacts are likely to become more pronounced in the years to come.

Shane Latchman, managing director of Verisk’s Extreme Event Solutions team in London, told The Insurer: “We do this report to give the industry a sense of loss metrics from a global standpoint. This is the loss the industry should expect each year, on average.

“One of the things we look at is what is the chance over the next decade of a loss of a certain size. We found there is a 90 percent chance of a loss of $240bn or greater if you account for exposure growth of 5 percent each year for the next decade.”

Factors driving this year’s increase also include Verisk’s latest update to its US wildfire model, which has increased the overall expected AAL for the peril from $4.5bn to $9bn.

Latchman said average annual industry losses are split around 50-50 between perils typically considered by the industry as primary and secondary, with tail events still dominated by primary perils.

“The larger tail impact for primary perils is still important from a reinsurance purchasing perspective,” he said.

The study shows exposure growth varies across regions. Over the past five years, Asia saw the biggest increase in annual exposure (up 8.2 percent) with Latin America and Oceania the slowest at 6.7 percent.

In the US, Verisk said residential reconstruction costs have grown by 7.4 percent over the past five years, but slowed to 3.8 percent over the past year.

North America continues to represent the largest exposure for the industry, and accounts for close to $97bn of the latest AAL total.