Home Business News Annual insured losses from extreme events hit $100bn

Annual insured losses from extreme events hit $100bn

by LLB Reporter
25th Oct 21 11:56 am

Extreme event modeling firm AIR Worldwide (AIR) today released its 2021 Global Modeled Catastrophe Losses report, detailing key global financial loss metrics based on AIR’s latest suite of models that reflect the near-present climate risk.

AIR estimates that on an annual average basis, catastrophes around the world are expected to cause about $106 billion in insured losses. AIR estimates that the five percent aggregate exceedance probability (EP) insured loss (or the 20-year return period loss) is approximately $203 billion, and the one percent aggregate exceedance probability insured loss (or the 100-year return period loss) is about $320 billion.

“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 modeled long-term average,” said Bill Churney, president of AIR Worldwide.

“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.”

In this report, AIR has always provided aggregate losses at the 100- and 250-year return period points from the full distribution of potential losses—and it continues to be important to discuss loss metrics in the tail of the distribution. However, given the concerns about the scale of recent catastrophe losses and the ability of the current suite of near-present climate models to reflect extreme loss potential, AIR is also reporting an additional point on the EP curve representing the five percent EP (or 20-year return period) because losses in excess of $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.

“AIR has been an industry leader in understanding the impact of climate change on atmospheric perils for over a decade,” said Rob Newbold, executive vice president, AIR Worldwide. “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 modeled losses will be updated to reflect this changing risk.”

The 2021 report also provides estimates of global economic losses from catastrophes, which highlight the persistent insurance protection gap that will limit a country’s ability to recover from a major extreme event. Global economic losses include insured and insurable losses, as well as losses from non-insurable sources, which may include infrastructure and lost economic productivity. Based on its research, AIR has determined that global economic losses are about three times higher than global insured losses on average, when trended to 2020 dollars. Compared to AIR’s modeled global insured average annual loss (AAL) of $106 billion, this would correspond to an economic AAL of more than $320 billion.

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