Swiss Re projects that the costs of climate disasters will reach $145 billion in 2025. The reinsurance giant released these findings in a recent report. It underscores the growing financial impact of extreme weather events and natural disasters.
“Climate change is an urgent global issue that requires immediate action,” said Swiss Re. The report highlights the increasing frequency and severity of events, including hurricanes, floods, and wildfires. The $145 billion estimate covers damages and economic losses worldwide.
Swiss Re’s findings align with concerns raised by experts. They warn that inadequate responses to climate risks could have dire economic consequences. The projected figure represents a significant increase from previous years.
It signals escalating risks for insurers, governments, and communities. The report suggests investment in climate resilience and adaptation measures is crucial. It calls on the public and private sectors to collaborate on strategies that address both immediate and long-term risks.
“Mitigating climate risks is not just an environmental issue; it’s an economic imperative,” the report stated. “Effective adaptation measures can reduce the financial strain and help build more resilient communities.”
Swiss Re’s projections come as global leaders focus on climate policy and sustainable development. The data highlights the importance of robust climate strategies and investments in protecting against future losses.
Experts and policymakers continue to collaborate to find viable solutions. They aim to curb the financial and human toll of climate-related disasters. Global insured losses from natural catastrophes reached $137 billion in 2024.
The disasters contributing most to these losses were hurricanes Helene and Milton, severe storms in the US, large-scale urban floods, and record losses in Canada. Economic losses from disasters in 2024 totaled $318 billion. 57% of these losses were insured, leaving a global protection gap of $181 billion.
Global insurance losses from natural catastrophes have consistently followed a 5-7% annual growth rate. If this trend continues, insured losses are expected to reach $145 billion by 2025.
Rising climate risks threaten economies
In 2024, most global insured losses were driven by secondary perils, particularly severe storms. However, primary perils, such as tropical cyclones and earthquakes, still hold significant loss potential. Notable peak loss years, such as 2017 when major hurricanes struck, saw insured losses rise 111% above the trend.
In such years, reinsurers provide crucial coverage, absorbing more than half of the excess losses. Catastrophe risk models estimate a 1-in-10 probability that global insured losses could reach $300 billion this year. This could potentially make it the next peak year for losses.
The reinsurance market is well-positioned to absorb such scenarios. Global traditional reinsurance capital is estimated to be around $500 billion. Alternative capital, including $50 billion from the cat bond market, also plays a role.
To sustain its risk transfer function, reinsurance capital must keep pace with rising exposures. It must also earn its cost of capital over time. As climate change continues to influence the risk landscape, it is imperative to find ways to mitigate climate risk and adapt.
With the potential for ‘peak year’ insured losses to exceed $300 billion, the reinsurance sector plays a crucial role in absorbing large shocks. While losses from secondary perils remain substantial, primary perils continue to pose the most significant risks. They could potentially drive insured losses of $300 billion or more in a peak year.
“Peak years should not be considered an anomaly,” said the report. “The most recent peak year was 2017, driven by major hurricanes. Since then, underlying risk has increased with economic growth and urban sprawl, including in vulnerable areas.
Climate change effects are also compounding losses for some perils and regions.
Balz Grollimund, Head of Catastrophe Perils, said, “Our analysis shows what is at stake: When a severe hurricane or earthquake hits an urban area with significant insurance, insured losses could easily reach $300 billion in that year.”
Jérôme Haegeli, Group Chief Economist, highlighted the importance of collaboration between the public and private sectors. He noted that it is essential for implementing effective protection measures to reduce losses. “A well-capitalised reinsurance sector, backed by $500 billion in capital, acts as a vital shock absorber, helping communities and economies recover more quickly.
That is why capital must grow in line with rising risk,” Haegeli continued. Urs Baertschi, CEO Property & Casualty Reinsurance, added, “Reinsurers provide data, risk insights, and knowledge about where dangers lie. The reinsurance industry is a shock absorber when danger materialises into disaster and an essential partner around risk awareness and prevention.”
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