Industry should expect average annual cat losses of $133bn: Verisk

Growing exposure values and rising replacement costs mean the industry should now expect average annual losses of $133bn, according to modelling firm Verisk Extreme Event Solutions.

The firm produces its average annual loss (AAL) figure every year by running all of its models with the latest exposure updates.

This year’s update represents an increase of around 7 percent on the 2022 estimate of $124bn, which itself was up 16 percent from the $106bn AAL published in 2021.

Milan Simic, managing director for EMEA, APAC and strategy at Verisk Extreme Event Solutions, told The Insurer: “For the five-year period between 2012 and 2016, the industry saw relatively low average losses of around $50bn.

“Between 2017 and 2022, annual losses averaged more than $100bn, with 2017 being the largest year. But what we have seen in the past five years is by no means exceptional – this is what should be expected.

“The level of insured losses the industry should expect every year is $133bn. The analysis shows the industry should expect a $238bn loss year every 20 years – or, to put it another way, there is a 5 percent chance next year could see a loss of $238bn or more. It is quite a sobering thought.

“There is a 1 percent chance next year will see aggregate losses in excess of $372bn. We as an industry need to be prepared for those sort of events,” Simic said.

The $133bn AAL figure remains dominated by North America at $85bn, with Asia and Europe at around $20bn each followed by Latin America and Oceania.

Since Verisk began the survey 11 years ago (under its previous guise as AIR Worldwide), the AAL figure has more than doubled from an initial $60bn.

Bill Churney, president of Verisk Extreme Event Solutions, said: “The growth in exposure values, driven primarily by continued construction in high-hazard areas, and rising replacement costs – largely due to inflation – are the most significant factors responsible for increasing catastrophe losses.

“The other significant factor is the impact of climate change, which is often cited as the primary reason for the increase in losses. But, while this plays a role, year-over-year growth of exposure and rising replacement values have a far greater short-term impact.”

For the year to date, Verisk said severe thunderstorms had accounted for more than 70 percent of insured losses with eight multi-billion-dollar events. This year’s survey suggests severe thunderstorms will typically contribute around 40 percent of global AAL.