Climate change no chump change for insurers

Company News

by Glenn Dyer

Climate change played a key role in the heavy rain and floods in southeast Queensland and along the NSW coast earlier this year which ended up being the world’s most costly disaster in the first half of 2022, according to research from Swiss Re, one of the world’s biggest re-insurers.

In its half yearly look at global insurance disasters and their cost – both in in terms of insurance and economic hit – Swiss Re said the floods and rain cost $US3.5 billion (around $A5 billion).

The Australian floods accounted for 10% of global estimated insured losses from natural catastrophes in first half of 2022 of $US35 billion ($A50 billion), 22% above average of past ten years.

“In February and March, torrential rains led to widespread flooding in Australia. It set a new record for flood losses in the country at so far close to USD 3.5 billion,” Swiss Re said in its half yearly report on the cost of disasters – both natural and man made – around the world in the first six months of this year.

“For the insurance industry, this is one of the costliest natural catastrophes ever in the country and the costliest event globally in the first half of 2022, in terms of insured losses.

The three major listed insurers – Suncorp (ASX:SUN), Insurance Australia Group (ASX:IAG) and QBE (ASX:QBE) all felt some pain, with Suncorp and IAG feeling it most with higher than budgeted for losses because of the floods, storms and rain.

Shareholders in the three insurers also felt the pain with lower payouts.

“A series of winter storms in Europe, unprecedented flooding in Australia and South Africa as well as a high number of thunderstorms in the US and Europe resulted in USD 35 billion of insured losses from natural catastrophes in the first half of 2022.

“Man-made events triggered an additional $US3 billion in insured losses, bringing total catastrophe insured losses to $US38 billion, according to Swiss Re Institute’s preliminary estimates.

As well the reported warned that the current dry conditions and “record-high temperatures in many parts of Europe may lead to further losses caused by droughts and wildfires.”

“The severe weather events of the past six months once again highlight that natural catastrophes, particularly secondary perils, are increasing in frequency and severity in all regions.

Martin Bertogg, Head of Catastrophe Perils at Swiss Re, said: “The effects of climate change are evident in increasingly extreme weather events, such as the unprecedented floods in Australia and South Africa.”

“This confirms the trend we have observed over the last five years, that secondary perils are driving insured losses in every corner of the world.

“Unlike hurricanes or earthquakes, these perils are ubiquitous and exacerbated by rapid urbanisation in particularly vulnerable areas. Given the scale of the devastation across the globe, secondary perils require the same disciplined risk assessment as primary perils such as hurricanes.”

In the first half of 2022, severe weather including hailstorms and heavy rain hit France, so far causing an estimated 4 billion euros of insured market losses, based on data from the French Federation of Insurance Companies, Swiss Re said.

Swiss Re said two severe summer heatwaves resulting in record-high temperatures across Europe have sparked destructive forest fires across southwest Europe. The global average temperature for June 2022 was about 0.3°C higher than the 1991-2020 average, making it the third warmest June on record.

“As warming climate is predicted to exacerbate droughts, the likelihood of wildfires increases, causing greater damage where rapid urban sprawl overlaps the wildland-urban interface,” the report said.

Jérôme Jean Haegeli, Swiss Re’s Group Chief Economist, said: “Climate change is one of the biggest risks our society and the global economy is facing. With 75% of all natural catastrophes still uninsured, we see large protection gaps globally exacerbated by today’s cost-of-living crisis.”

“Partnering with the public sector, the insurance industry is critical for strengthening society’s resilience to climate risks, by investing in and underwriting sustainable infrastructure.”

But besides the insurance cost, there are additional economic losses from these disasters and Swiss Re estimated global economic losses from natural and man-made catastrophe events $US75 billion in the first half of 2022. This was just below the average of the past ten years ($US80 billion).


Like its listed peers QBE and Suncorp, Insurance Australia Group (IAG) has sliced its dividend payout to shareholders for the year to June 30 after reporting results of a very mixed quality.

The details of the results were released in an update on July 22 with only the size of the final dividend to be revealed and the auditing of the results to be completed.

IAG will pay a final dividend of 5 cents a share and full year payment of 11 cents a share, down from the 20 cents a share paid for 2020-21.

And like Suncorp in particular (but less so with QBE) the impact of floods, rain, storms and high winds hurt the company’s insurance performance, driving up the cost of these natural catastrophes.

The insurer reported a net after tax profit of $347 million (a $427 million loss in 2020-21), reflecting the performance of the underlying core business and a $200 million pre-tax release from the business interruption provisions.

The net result also includes a strengthening of prior period reserves of $135 million in the June, 2022 half (FY22: $172m) “and a challenging operating environment with a higher incident of natural perils, volatile investment markets and higher inflation.”

IAG said that $172 million ‘prior years reserves strengthening was due to “mainly to late reported claims, notably worker injury claims and a higher claims inflation in the commercial liability portfolio.”

For the year to June natural perils costs were $354 million above original allowance of $765 million and “broadly in line with the guidance of $1.1 billion announced in March.

There was also a negative credit spread impact of $45 million for the year.

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