Average annual cat losses break $100bn barrier, says AIR

26-10-2021

Average annual cat losses break $100bn barrier, says AIR

Bill Churney, president, AIR Worldwide

Global average annual losses from extreme events now top $100 billion, according to AIR Worldwide. The modelling firm’s 2021 Global Modeled Catastrophe Losses report estimates the long-term average annual cat losses worldwide at $106bn – over $30bn more than in the last decade.

It also calculated that the five per cent aggregate exceedance probability (EP) insured loss (or the 20-year return period loss) is approximately $203bn. The one per cent aggregate EP loss (a 100-year return period loss) is about $320bn. 

“While there has been justifiable concern about extreme event losses over the last few years, outside of 2017, actual global insured losses have been below the modelled long-term average,” said AIR president Bill Churney. 

“Our report shows that the global insurance industry should currently expect a long-run annual average loss of $106 billion. This notably exceeds the actual average loss of the past decade of approximately $75 billion and is a stark reminder that we have been fortunate to not have had a major tropical cyclone or earthquake event in a highly populated region. However, such events can and will occur under the climatic conditions of today, and society must continue to focus on ensuring resilience to the risks of today while also looking forward to how risk may change in the decades ahead.”  

According to the company, the businesses’ new 20-year period loss calculation (it has always included 100 and 200-year figures) show that losses of over $200 billion are a “very real possibility”. 

“There’s greater than a 40% chance the insurance industry will experience losses of greater than $200 billion in the next decade before accounting for growth in property exposure or climate change,” it said.

Rob Newbold, executive vice president of AIR, added: “While it is certainly important to prepare for the business impacts of climate conditions that may exist in the long-term, our clients have stressed to us the reality that most financial decisions are made on a much shorter, under 10-year time horizon.”

We invest significant resources to ensure our models continue to reflect the impacts of our changing climate and provide a view of the 0 to 10-year near-present climate. As the risk continues to evolve, our models will incorporate the latest research on this evolution, and our global modelled losses will be updated to reflect this changing risk.”

For the first time, this year’s edition of the paper also includes a section on the Intergovernmental Panel on Climate Change (IPCC) reports and suggests how the protection gap might evolve in a warmer climate. It shows a large and growing protection gap for many of the perils highlighted by the IPCC report (AR6), including coastal and inland flooding.

losses, loss, climate, risk, Catastrophe, AIR, cat losses, Bill Churney, Intergovernmental Panel on Climate Change (IPCC), North America

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