Could 2025 Be Canada's Next 'Peak Loss' Year?
In 2024, Canada faced its worst year ever for natural catastrophes (NatCats), recording nearly $9 billion in insured losses. Globally, insured NatCat losses hit an eye-watering US$137 billion, marking the fifth consecutive year of losses surpassing US$100 billion. According to Swiss Re's recent sigma report, we could be staring down an even costlier future if a major peril—such as a devastating hurricane or earthquake—strikes in 2025.
Understanding Peak Loss Years
A "peak loss" year is characterized by significantly higher-than-average NatCat losses due to major events like hurricanes or earthquakes. Historically, peak years like 2005 (Hurricane Katrina) and 2017 (Hurricanes Harvey, Irma, and Maria) showed just how dramatically primary perils can amplify losses.
Swiss Re estimates a worrying 10% chance that 2025 could become one of these peak loss years, potentially pushing global insured losses beyond US$300 billion—over twice the expected annual trend of US$145 billion. This scenario would echo disastrous years like 2017, highlighting the essential role reinsurance plays in managing catastrophic financial shocks.
Rising Costs from Secondary Perils
It's not just primary perils that are causing alarm. Secondary perils, such as floods and wildfires—which typically result in lower individual event costs but occur more frequently—are becoming a significant concern. In fact, Swiss Re notes these events have contributed heavily to rising annual losses.
For example, Canada's record-breaking catastrophe year in 2024 saw severe convective storms and flooding cause extensive financial impacts, underscoring the importance of comprehensive risk management strategies, even against seemingly less severe events.
Building Resilience: More Than Just Codes
While strengthening building codes and improving infrastructure resilience are vital first steps, they're not sufficient on their own. Swiss Re highlights that despite advancements in building regulations, losses continue to escalate due to population growth and rapid urban development in vulnerable areas.
A stark illustration is Hurricane Ian in 2022, which led to insured losses of US$64 billion—primarily driven by a 620% increase in population within the affected area since 1975. This emphasizes the necessity for holistic approaches to risk management, incorporating not only regulatory measures but also informed urban planning and risk-aware community development.
Preparing for Uncertainty
The potential for massive NatCat losses underscores the importance of effective risk management and reinsurance strategies. With global reinsurance capital robustly positioned at around US$500 billion, and leading firms maintaining solvency ratios averaging 250%, the industry is well-equipped to absorb significant shocks. Yet, it's critical for individuals, businesses, and governments alike to remain proactive.
At Why Worry Risk Management, we believe in equipping you with the knowledge and strategies to navigate these uncertainties. Comprehensive insurance, proactive risk assessment, and adaptive planning are essential to safeguarding against increasing natural disaster risks.
As 2025 unfolds, now is the time to assess and fortify your risk management strategies. Don't wait until it's too late—plan today to protect tomorrow.
Why worry? Manage your risks and secure your peace of mind.
For further guidance on managing your risks in an increasingly uncertain world, contact our team at Why Worry Risk Management.