Brace for a $300bn+ loss year, says Swiss Re

Wildfire fastest growing peril, but peak losses driven by tropical cyclones and earthquakes, says Swiss Re’s head of catastrophe perils.

Key points:
$300bn+ peak-loss year inevitable
Wildfire risk growing peril
Collaboration necessary to tackle risks

“What sets the peak perils apart is they can generate the peak-loss years, where we see losses of $300 billion or more. We still believe really large systemic loss years will be driven by tropical cyclones and earthquakes.”

The industry should prepare for global insured natural catastrophe losses exceeding $300 billion in a peak year when tropical cyclones or an earthquake strike areas with high insurance exposure, similar to what happened in 2004/2005, 2011 and 2017, according to Balz Grollimund, head catastrophe perils at Swiss Re. He explains that an average loss year given 2026 exposure is expected at $148 billion of insured losses – with a high percentage generated by secondary perils. When peak peril events occur in addition, the figures will be much higher than anything the industry has seen.

“What sets the peak perils apart is that they can generate the peak-loss years, during which we see losses of $300 billion or more. We still believe really large systemic loss years will be driven by tropical cyclones and earthquakes,” he told Monte Carlo Today.

Swiss Re Institute estimates global insured natural catastrophe losses follow a long-term real growth trend of 5-7% a year. On that trend, insured losses are expected to reach $148 billion in 2026. “The long-term loss trend is clear and persistent, driven largely by the growing value of insured exposures,” he said.

He believes the industry has had some luck in recent years. “It is the luck of the draw; last year and also in 2026 we seem to be on the lucky side of things. But that does not reflect the underlying risk landscape. The most important thing is we understand and cost the underlying risk we are assuming as insurers and reinsurers. That must be rooted in the risk trends we see.” Swiss Re models a peak-loss scenario of $320 billion.

The wildfire threat

Swiss Re’s 2026 Sigma report identifies wildfire as the fastest-growing peril globally, at about 12% annually, with North American insured wildfire losses growing by more than 14% a year. In Europe, insured wildfire losses are also rising quickly, although severe convective storms remain the region’s main insured-loss growth driver.

Grollimund notes that the absolute risk level, at least in Europe, is still lower than for other perils, but it is also clear it is increasing. Equally, many countries not traditionally prone to wildfires, such as France, the UK and Belgium, have had them – another sign that wildfire is becoming a relevant peril across Europe, not just in Southern Europe.

He stresses that the industry is doing much to better understand this risk – but cooperation is also needed. “Naturally, the industry’s efforts to assess the risk have to keep pace, and are keeping pace, so we can remain ahead of the curve,” he said. “But for it to be insurable, the risk must be kept at a manageable level where insurance makes sense. Strict implementation of fire-precautionary measures will remain important, as will continuously improving the capability and speed of wildfire response. And ultimately, insurance also needs to be able to charge risk-appropriate premiums. That is one of the basic preconditions for insurance to remain available.”

Stepping up

Since the reinsurance market corrected a few years ago, with rates hardening sharply and terms and conditions tightening, a greater portion of secondary losses have been borne by insurers. Higher retentions and a lack of aggregate coverage partly moved the burden of losses. But Grollimund stresses that reinsurers still take their fair share.

He notes that the Los Angeles wildfires last year generated about $40 billion of insured losses. Roughly one third was covered by reinsurance. The Bernd floods in Germany in 2021 were again a major insured loss, with reinsurance covering roughly three quarters of the German insured loss, he noted.

“When floods, hail events and wildfires become very large individual losses, the reinsurance industry is already taking a significant share. That is where reinsurance plays its role: covering large and peak losses too big for individual insurers or insurance markets to manage on their own,” he stressed.

But, as is the case with wildfire risk, he also noted that wider collaboration is needed to better understand and mitigate all perils. “It starts with recognising that the insurance industry cannot do it alone. It requires collaboration between property owners, public entities and the insurance industry.

“It is also important that those stakeholders have a common view of the risk. Whatever measures you take, there needs to be a shared understanding of the risk level and therefore of the right measures.

“Those measures may differ by region and by situation. The next step is to continue reducing risk and adapting to it, so it remains manageable. Whatever part cannot be reduced is where the insurance industry continues to play its role and take that part of the risk.”

Balz Grollimund is the head catastrophe perils at Swiss Re. He can be contacted at: balz_grollimund@swissre.com

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