By Simon Jessop, Alessandro Parodi and Laura Lenkiewicz
LONDON (Reuters) -Insured losses stemming from natural catastrophes rose to $50 billion in the first half of 2023, the second highest reading since 2011, reinsurer Swiss Re said on Wednesday.
Severe thunderstorms accounted for 70% of total insured losses, while the February earthquake in Turkey and Syria was the single costliest disaster, the company said in a report.
In the United States alone, thunderstorms caused insured losses of $34 billion, the highest ever in a six-month period, while extreme weather conditions in Florida and California forced some insurers to stop sales in the states.
"The effects of climate change can already be seen in certain perils like heatwaves, droughts, floods and extreme precipitation," Jérôme Jean Haegeli, Swiss Re's Group Chief Economist, said in the report.
Overall global economic losses totalled $120 billion, 46% above the ten-year average, Swiss Re added, with the insured losses up from $48 billion in the first six months of 2022.
"The above‑average losses reaffirm a 5–7% annual growth trend in insured losses, driven by a warming climate but even more so, by rapidly growing economic values in urbanized settings, globally," Martin Bertogg, Head of Catastrophe Perils at Swiss Re, said.
As insuring against natural catastrophe grows more expensive, underwriters issued a record amount of insurance-linked securities in the first half of the year, including catastrophe (cat) bonds, which pay the issuer in the event a predefined disaster occurs.
Cat bond issuance spiked to a total of $40 billion - twice that of a decade ago - as insurers hedged against natural disasters and large funds with a higher risk/reward appetite sought attractive investments, Morningstar said in a separate note last week.
Wind events in the U.S., including tornadoes and hurricanes, accounted for almost 70% of the total issuance of the securities in the first half of 2023, the Morningstar report showed.
Funds such as French asset manager Amundi, Zurich-based GAM group, Britain's Schroders (LON:SDR), and Switzerland's Twelve Capital are among the top investors in this market, Morningstar said.
However, primary insurers are also starting to look at the capital market, mostly driven by capacity issues, Dennis Sugrue, senior director at S&P Global, told Reuters.
Traditionally less prominent markets are opening to natural cat bonds, such as Europe, where the risk transfer needs of insurance and reinsurance companies are driven especially by inflation, Andy Palmer, EMEA & APAC head of ILS structuring at Swiss Re Capital, said
Should natural disasters become more common and intense, large funds will be drawn to the promise of higher returns, Morningstar analyst Paul Olmsted told Reuters, as more dangers will present them with more opportunities.