Natural disasters resulted in global economic losses of US$275bn in 2022: Swiss Re

Johannesburg - The Swiss Re Group, one of the world's leading providers of reinsurance, insurance and other forms of insurance-based risk transfer has, through the Swiss Re Institute on Wednesday published a new report that offers interesting data on the effects of natural catastrophes during the year 2022.

At a global level, the Institute says with hurricane Ian in Florida, record breaking losses from hailstorms in France, floods in Australia and South Africa, winter storms in Europe and the US as well as droughts in Europe, China and the Americas, 2022 was the second consecutive year in which insured losses from natural catastrophes exceeded the US$100bn mark.

Natural disasters resulted in global economic losses of US$275bn in 2022, of which US$125bn were covered by insurance. This reaffirms the trend of a 5 – 7% average annual increase in insured losses over the past three decades, reveals Swiss Re’s latest sigma report.

"The magnitude of 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."

Inflation impacts values of insured assets

With natural disasters continuing to wreak property damage across the world, the demand for coverage has grown. At the same time, inflation has surged over the last two years, averaging 7% in advanced economies and 9% in emerging economies in 2022. The effect of high prices has been to increase the nominal value of buildings, vehicles and other insurable assets, thus pushing up insurance claims for damage caused by natural catastrophes.

"The economic storm is not over, and interest rates will likely have to increase further given existing inflation pressure. 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", said Jérôme Jean Haegeli, Swiss Re’s Group Chief Economist.

Hurricane Ian main loss driver in 2022 Insured losses were largely driven by Hurricane Ian, by far the year's costliest event. Making landfall in Florida in September as a category 4
storm, Ian resulted in estimated insured losses of USD 50–65 billion. After Hurricane Katrina in 2005, Ian ranks as the second-costliest natural catastrophe insured loss event on sigma records.

In February 2022, a cluster of storms (Eunice, Dudley, Franklin) in north-western Europe triggered combined insured losses of over USD 4 billion, bringing the total for this category to almost double the previous 10-year average. Meanwhile, France saw the highest ever annual loss (USD 5 billion) from hailstorms.

Global losses from floods were above average, the main event being flooding in eastern Australia in February-March 2022. This resulted in insured losses of USD 4.3 billion, the biggest natural catastrophe claims event ever in Australia.

On the opposite end of the rainfall spectrum, weather variability and anomalous atmospheric circulation conditions contributed to severe droughts and record-breaking heatwaves across the world. In Brazil, crop yields, particularly soybean and corn, suffered most, resulting in insured losses of USD 1 billion.

South Africa Commentary

Priyen Mehta, Head P&C Southern Africa says total economic losses from natural catastrophes in South Africa stood at USD 3.5 billion in 2022 (up from USD 0.1 billion in 2021), and USD 1.4 billion of these losses were covered by insurance (up from USD 0.0 billion in 2021), equating to a protection gap of 60% (down from 90% in 2021).

A storm bringing days of heavy precipitation in the Durban area resulted in floods and landslides and estimated insured losses of USD 1.5 billion. The losses, the costliest ever in South Africa, included claims for damage at industrial locations that are part of international supply chains: exposures that had not been taken into consideration.

Swiss Re says the loss magnitude shows that lack of transparency in exposure data can lead to an underestimation of risks, and unanticipated losses, adding that South Africa's climate is forecast to get hotter and drier, exacerbating droughts and water scarcity, citing Cape Town as having faced being the first major city to run out of water in 2018 after an extreme drought.

"We have seen an increase in extreme weather events such as flood, hail and storm, together with wildfire in South Africa in the last years. The extreme weather events in 2022 have been felt particularly in areas vulnerable to natural disasters and their economic consequences have been exacerbated by high inflation.

“The re/insurance sector has a key role to play in boosting resilience against such events. However, insurance is no substitute for constant investment in good planning and adaptation measures to mitigate risks. Both prevention and insurance are important, and close collaboration between public authorities and the private sector is needed to make the country better prepared for risks," Mehta said.   

Swiss Re has created an interactive website which allows specific risks and their impact to be viewed by country. You can view the full country profile for South Africa here.