Insurers have already grown accustomed – well, as accustomed as one can – to the new normal of annual insured natural catastrophe (natcat) losses topping $100bn. Indeed, the annual average loss from natcats is nearing $150bn, based on data from the last few years.
But what if losses hit $300bn this year?
That was the stark warning issued by the Swiss Re Institute at the end of last month, which flagged a 1-in-10 probability that 2025 insured natcat losses could surpass $300bn.
The Swiss reinsurer's research division highlighted global insured natcat losses are already on trend to reach $145bn in 2025, mainly driven by secondary perils like severe thunderstorms, floods and wildfires.
Given these underlying risks have continued to rise within the context of economic and population growth compounded by climate change, regulators and supervisors in the last month have continued stepping up their responses to this growing threat.
For example, the Prudential Regulatory Authority cautioned that some insurers are still falling short in managing climate-related financial risks.
The UK financial regulator launched a consultation on strengthened expectations covering governance, solvency planning and the Own Risk and Solvency Assessment (ORSA). Experts have described the proposals described as a fundamental regulatory shift.
Over in Continental Europe, Germany's financial regulator BaFin has called for better integration of physical climate risks into financial sector risk management, warning of persistent shortfalls, despite recent progress.
At the same time, the insurance industry has continued to call for a simplification of sustainability disclosures in Europe, as the European Commission's Omnibus package winds its way through the institutions of Brussels.
Insurance Europe responded to the European Financial Reporting Advisory Group's call for input on technical advice for revising and simplifying the European Sustainability Reporting Standards (ESRS).
In addition to welcoming the opportunity for revision, the trade body called on policymakers to protect insurers that have already reported under the ESRS, warning that ongoing reforms could expose early adopters to compliance risks.
However, not all attempts to amend sustainability regulation have been welcomed. The International Sustainability Standards Board (ISSB) has proposed amendments to IFRS S2, its standard for climate-related disclosures, which would introduce reliefs for Scope 3 greenhouse gas (GHG) emissions reporting.
Alex Hindson, partner and head of sustainability at consultancy Crowe UK, warned the move risks undermining the insurance sector's transition efforts.
In other news during the last month, InsurnaceERM reviewed more sustainability disclosures made by insurers for their 2024 accounts. French insurer Axa revealed it cut 25% of insurance-associated emissions (IAEs) for its most material commercial clients. Meanwhile, German reinsurer, Hannover Re acknowledged the environmental implications of its reinsurance activities, but has opted not to quantify IAEs.
A number of motor insurers that benchmarked IAEs in their disclosures recognised the challenges they would have in cutting such emissions, suggesting the major levers to do so are largely out of their hands.
