The Insurance Industry’s New Normal: Rising Catastrophe Losses and Strategic Reinsurance Opportunities

The insurance industry is confronting a paradigm shift driven by climate change, with catastrophe losses surging at an alarming rate. In 2024, global insured losses from natural disasters reached USD 137 billion, a 5-7% annual growth rate in real terms, while projections for 2025 suggest losses could exceed USD 145 billion [1]. This trajectory underscores a critical inflection point for reinsurance and risk modeling firms, which are now central to managing the escalating financial and operational risks posed by climate-driven events.

The Climate-Driven Catastrophe Landscape

Climate change is amplifying the frequency and severity of secondary perils such as severe convective storms and urban floods, while primary perils like tropical cyclones and earthquakes remain high-impact threats [1]. For instance, the U.S. accounted for a significant share of 2025’s first-half losses, driven by wildfires in Los Angeles and convective storms exacerbated by extended wildfire seasons and stronger winter winds [2]. These compounding risks highlight the urgent need for advanced risk modeling and adaptive strategies to quantify and mitigate exposure.

The global protection gap—defined as the difference between economic losses and insured losses—stood at 38% in 2024, a record low, but disparities persist. High-income countries like the U.S. have improved insurance penetration, while lower-income nations remain underinsured, creating both moral and financial challenges [5].

Reinsurance: Navigating the “Tragedy of the Horizon”

Reinsurance firms face a unique dilemma: the mismatch between policy horizons (typically 12 months) and the long-term, evolving nature of climate risks. This “Tragedy of the Horizon” [1] forces insurers to recalibrate traditional catastrophe models, which are calibrated to historical data, to account for future climate scenarios and societal adaptations such as flood defenses and revised building codes [1].

Swiss Re and Munich Re, two industry titans, exemplify this adaptation. Swiss Re’s 2024 financial results—net income of USD 2.6 billion for H1 2025, a 24% year-on-year increase—reflect disciplined underwriting and low large catastrophe claims [2]. The company’s Responsible Investing strategy, including a net-zero portfolio by 2050, aligns with its climate action goals [3]. Munich Re, meanwhile, reported a H1 2025 net result of €3.2 billion, leveraging its expertise in climate risk modeling to address rising disaster frequencies [3]. Both firms emphasize transparency in communicating climate risks to clients, a critical factor in maintaining trust and profitability [1].

Risk Modeling Innovations: CoreLogic and Moody’s RMS

The demand for forward-looking risk modeling is surging, with firms like CoreLogic and Moody’s RMS leading the charge. CoreLogic’s cloud-based platform, Navigate™, offers high-resolution catastrophe risk models for over 185 perils, enabling insurers to assess property-level risks across six continents [1]. This scalability is vital for insurers grappling with granular data needs in a fragmented risk landscape.

Moody’s RMS, now part of Moody’s, has integrated climate change scenarios into its models, using Representative Concentration Pathways (RCPs) to evaluate long-term risks [3]. Its U.S. Wildfire Model v2.0, adopted by California’s Department of Insurance, exemplifies how regulatory alignment can drive market adoption. In 2024, Moody’s reported a 19.81% revenue increase, underscoring the growing demand for climate-informed tools [1].

Investment Case: Resilience and Innovation

The reinsurance and risk modeling sectors present compelling investment opportunities, driven by necessity and innovation. Swiss Re’s 23% ROE in H1 2025 and Munich Re’s €3.2 billion profit demonstrate resilience despite a softening market [2][3]. CoreLogic’s AUM growth of 7% year-on-year and Moody’s RMS’s 6.01% CAGR through 2029 further validate the sector’s potential [1][3].

However, challenges persist. A 5.9% decline in Swiss Re’s treaty premium volume and a 2.5% price decrease at Munich Re highlight the pressures of a competitive market [2][3]. Investors must weigh these risks against the long-term tailwinds of climate adaptation, regulatory mandates (e.g., EU CSRD, U.S. SEC climate disclosures), and the $33.9 trillion ESG investment target by 2026 [1].

Conclusion

The insurance industry’s new normal is defined by volatility and urgency. Reinsurance and risk modeling firms that prioritize climate adaptation, technological innovation, and transparent communication will outperform peers. As losses from climate-related events continue to rise, these firms are not just mitigating risk—they are shaping the future of global resilience.

Source:
[1] sigma 1/2025: Natural catastrophes [https://www.swissre.com/institute/research/sigma-research/sigma-2025-01-natural-catastrophes-trend.html]
[2] Swiss Re reports a net income of USD 2.6 billion [https://www.swissre.com/media/press-release/pr-20250814-hy-2025-press-release.html]
[3] With a profit of €3.2bn in H1, Munich Re on course to meet [https://www.munichre.com/en/company/media-relations/media-information-and-corporate-news/media-information/2025/half-year-financial-report.html]
[4] Forward-Looking Catastrophe Models [https://www.moodys.com/web/en/us/capabilities/catastrophe-modeling/forward-looking-view-risk.html]