The Big Question:  Are the moderate natural catastrophe losses in 2025 simply masking escalating risks?

Last year insured losses for natural catastrophes were below average for the past decade but were still in excess of the $100 billion level which is fast becoming the new normal for the costs of natural catastrophe.

Reinsurer Swiss Re reported secondary perils dominated natural catastrophe headlines in 2025. The LA wildfires generated record-breaking combined insured losses of around $40 billion. Losses from severe convective storms (SCS) remained elevated with $51 billion of losses. It added 2025 was also notable due to the absence of a major US hurricane landfall. However, with long-term global insurance losses from natural catastrophes continuing to follow the 5–7% annual growth rate, sustained adaptation and risk mitigation are instrumental to maintaining long-term insurability and reduce protection gaps.

Swiss Re put the costs of natural losses at $107 billion, below the long-term natural catastrophe loss trends, but there was a significant shift in how that figure was reached.

It was elevated due to a high frequency of events impacting densely built, high-value areas, with 2025 the third-costliest year on record for SCS – including hailstorms and damaging winds, after 2023 and 2024 (in 2025 prices) – adding $51 billion of insured losses globally. Meanwhile, global flood-related insured losses were well below average in 2025 – at $3.4 billion compared to a $15.4billion previous five-year average.

But does this see a shift away from major hurricane losses and with it a reverse in the upward trend, and how should in the industry approach future risks?

Lee Williams, Head of AdvantageGo, a Sapiens company.

Cameron Rye, natural catastrophe analytics director at Willis Re, suggests a single year should not be interpreted as a sign of lowered risk.

“Insured losses in 2025 broke the $100 billion barrier for the sixth consecutive year – a number that has long been considered a measure of escalating natural catastrophe risk.

“Without a major U.S. hurricane landfall, however, losses came in below the average incurred during the past decade. While the market may take a moment to exhale, context is crucial.

“A below-average loss year is not an anomaly; statistically, it is the expectation. Because catastrophe risk is heavily skewed by tail events, the average will always be driven by a handful of very active years, leaving the majority of years falling below the mean.”

He adds: “What makes 2025 stand out is that losses were modest despite the backdrop of elevated hazard potential. Sea-surface temperatures in the North Atlantic have been among the warmest on record, while global mean temperatures continued to test the upper bounds of the satellite era.

“Exposure concentrations in hazard hotspots are higher than ever and rebuild costs continue to rise. The ingredients for large losses were present in 2025, yet the atmosphere chose not to combine them.”

But whether this signals a new period for natural catastrophe risk remains a matter for some conjecture and Rye believes that the long-term outlook remains unchanged.

“This situation is best described as transient meteorological luck: the temporary alignment of atmospheric and oceanic conditions that suppresses loss activity without altering the underlying risk,” he explains. “A quiet year does not signal that the underlying hazard or vulnerability has reduced. Rather, it represents a fortunate gap in natural catastrophes. When viewed through this lens, 2025 stands out as a moderate loss year in a high-risk situation.”

Looking to the future Rye says: “Long-term the climate is warming, which continues to load the dice toward greater volatility and more complex extremes, from wildfire behaviour outside historical norms to record rainfall and the rapid intensification of tropical cyclones. Even if the financial tallies appear muted, the physical risk remains on an upward trajectory.

“Quiet years often breed a false sense of security. The 2006–2016 drought of major hurricane landfalls in the U.S. created an illusion of reduced risk. But the inevitable return of high-impact events in 2017 – including hurricanes Harvey, Irma, and Maria – taught us that lucky streaks always end.

“As the reinsurance market softens, the temptation to chase premium can erode discipline, leading to the silent accumulation of risk. In this environment, strong scientific judgment, rigorous model evaluation, and robust exposure management frameworks will be essential safeguards.”

For insurers Rye says they cannot afford to stop preparations for an ongoing deterioration.

“Now is the time to dig into the data. Leveraging research to develop bespoke views of risk, such as climate-conditioned event sets or vulnerability functions based on recent claims experience, allows cedents to distinguish portfolio resilience from temporary good fortune,” he adds. “Today, (re)insurers increasingly expect not only robust numbers from models, but also a transparent account of the science and limitations behind them.

“Meteorological luck can delay the inevitable but does not offer lasting protection. The question is whether the industry uses this pause to relax or to prepare for when the pendulum inevitably swings back.”