Increased frequency of natural catastrophes spells uncertainty for reinsurers

As natural catastrophes challenge the market with greater frequency, Liberty Mutual Re’s Miguel Martinez-Alvarez considers the reinsurance market’s position.

Natural disasters

According to the latest assessment report from the Intergovernmental Panel on Climate Change, the global proportion of major hurricanes registering as Category 3-5 has increased over the past 40 years and this trend is expected to continue. There is also growing certainty that coastal flooding and wildfires will increase in frequency and severity, with the latter most acutely experienced in the western US, southern Europe and Australia.

The situation will be compounded by the return of a cold La Niña phase. Cooling in the tropical Pacific has already begun and is expected to intensify into autumn and towards the winter season. As this colder air descends in the eastern Pacific, creating stable and dry weather, air is expected to rise in the western Pacific, causing frequent thunderstorms and more heavy rainfall.

The picture is little better regarding inland flooding, where an increase in both frequency and severity is anticipated in line with the rapidly growing number of heavy-precipitation events in central North America, northern Europe and west-central Asia. These have become particularly acute in recent years with many storms moving more slowly and increasing the incidence of flash floods.

Against this backdrop it is widely acknowledged that extreme weather events – previously called 1-in-100-year events – could happen every year by the end of this century. The (re)insurance industry consequently has an interest in doing what it can to address this trend. We also all have a vital role to play in both our personal and professional lives.

However, are we collectively doing enough to combat this shifting global landscape?

It would be very difficult to answer with a ‘yes’. But the changing frequency and severity of natural catastrophes complicates the ability of the reinsurance sector to make decisions based on previously relied upon data.

Liberty Mutual Re has an important role to play in supporting its clients through education, robust risk management, underwriting and investment activities.

Our parent, Liberty Mutual, has already taken steps by becoming the first US P&C insurer to sign up to the United Nations-supported Principles for Responsible Investment (PRI) initiative, the leading international network of institutional investors committed to including ESG factors in their investment decision making.

With recent temperatures reaching 47°C (116.6°F) in the Pacific Northwest and Canada and 53.2°C (127.7°F) in Death Valley, California, the pressure on the industry to help strategise solutions can only increase.

It is essential that as an industry, we acknowledge this threat constructively as we engage in our cycle of autumn renewal negotiations. The apparent inevitability of further significant natural catastrophe challenges should not be far from these conversations.