The global (re)insurance industry should now expect average annual catastrophe losses to total $123bn, according to the latest study by Verisk Extreme Event Solutions.

Verisk

The modelling firm, previously known as AIR Worldwide, produces its average annual loss (AAL) figure every year and the latest update represents a 16 percent increase on the $106bn AAL published in 2021.

Verisk said the increase had been driven by inflation and exposure growth, as well as adjustments to its US thunderstorm model to reflect the near-present climate. 

The adjustment follows a five-year period in which the industry has seen average catastrophe losses of ~$100bn.

Following the latest study, the return period for a year with a loss of $100bn or higher is approximately three years. An annual loss of $150bn now has a return period of 10 years.

Excluding earthquake, the AAL now stands at $86bn, with a return period for a loss of $100bn or greater rising to four years. A $150bn annual loss has a return period of 15 years.

Global insured average annual loss (AAL) and key metrics from aggregate exceedance probability (EP) curve

Speaking to The Insurer at this year’s Rendez-Vous in Monte Carlo, Milan Simic, managing director of global business development at Verisk Insurance, said the key takeaway from the study was that the losses seen over the past five years should not be seen as extraordinary.

“Pricing models, capacity and capital need to be adjusted in line with this new world,” he said.

“While the industry has experienced average losses of $100bn over the past five years, during the previous five the total was much lower and questions have been asked whether this is the new normal, with some companies pulling out of nat cat.”

Simic said exposure growth, inflation and updates to models were the main drivers of the year-on-year increase to the AAL.

“Firstly, exposure growth. Each year more and more properties and assets are being insured. This is compounded by inflation – we are now in a double-digit inflation environment.”

An update this year to Verisk’s US thunderstorm model is understood to have added between $5bn and $10bn to the average. 

Verisk said severe thunderstorm, alongside other “secondary perils” such as flood and wildfire, had accounted for 56 percent of all cat losses over the past 10 years.