Natural disasters caused global economic losses of US$275 billion in 2022, of which $125 billion were insured losses, according to a new report from Swiss Re.
Last year was the second consecutive year in which insured losses from natural catastrophes surpassed the US$100 billion mark, Swiss Re reported. The result confirms a trend of a 5% to 7% average annual increase in insured losses over the last three decades.
“The magnitude of insured losses in 2022 is not a story of exceptional natural hazards, but rather a picture of growing property exposure, accentuated by exceptional inflation,” said Martin Bertogg, head of catastrophe perils at Swiss Re. “While inflation may subside, increasing value concentration in areas vulnerable to natural catastrophes remains a key driver for increasing losses. For our industry, this is a call both to reflect the latest exposure even more carefully in risk assessments while continuing to support society in being better prepared.”
As disasters like Hurricane Ian in Florida and flooding in Australia and South Africa have wrought destruction, the demand for catastrophe coverage has grown. This increase in demand comes amid a spike in inflation, averaging 7% in advanced economies and 9% in emerging economies last year. The effect of this inflation has been to increase the nominal value of buildings, vehicles and other insurable assets, thus increasing claims amounts for damage caused by catastrophes, Swiss Re said.
“The economic storm is not over, and interest rates will likely have to increase further given existing inflation pressure,” said Jérôme Jean Haegeli, group chief economist at Swiss Re. “This means higher financing costs and, as a result, capacity providers are likely to remain more cautious in deploying capital for a number of reasons, including risk assessment and loss experience. In our view, as higher exposures encounter shrinking risk appetite, momentum for rising prices, higher retentions and tighter terms and conditions will likely continue.”
Insured losses in 2022 were largely driven by Hurricane Ian, which was “by far the year’s costliest event,” Swiss Re said. Ian slammed into Florida in September as a category 4 storm, causing estimated insured losses of US$50-$65 billion.
In February 2022, a cluster of storms in northwestern Europe caused insured losses of more than $4 billion. France saw its highest annual loss on record at US$5 billion from hailstorms.
Global flood losses were above average last year, with the most significant flooding occurring in eastern Australia in February and March of 2022, resulting in insured losses of US$4.3 billion, Swiss Re reported.
Brazil, on the other hand, saw droughts that damaged crop yields, resulting in insured losses of US$1 billion.
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