Secondary perils such as severe convective storms and floods are worsening in Australia and worldwide, according to Swiss Re.

The reinsurer’s latest Sigma report says such perils accounted for a record 92% of the $US107 billion ($151 billion) in insured natural catastrophe losses last year.

A thunderstorm in Brisbane and surrounding areas last November caused insured losses of $US1.8 billion ($2.54 billion) – Australia’s second-costliest severe convective storm (SCS) after a 1999 Sydney catastrophe, on an inflation-adjusted basis.

“The three key [secondary] perils of SCS, wildfire and floods [excluding cyclone-linked deluge] are creating rapidly growing insured losses with widely varying drivers worldwide,” the report says.

Secondary perils account for about two-thirds of the change in annual average losses since 1970, according to Swiss Re.

“The extent to which secondary perils add to annual insured losses poses a key challenge for the (re)insurance industry, as these traditionally less comprehensively modelled perils are now materially increasing the overall loss burden.

“Hazard intensification and vulnerability effects, amplified by asset expansion into high-risk areas, are creating loss trends above economic growth.”

Sustained investment in modelling secondary perils is required – including efforts to improve data quality and regular model updates – to ensure capital and premiums keep pace with the risk.

However, the challenge in understanding and assessing the threats is made more difficult because impacts are highly localised and risk landscapes are rapidly evolving.

The Sigma report says insured natural catastrophe losses in Australia and the Oceania region totalled $US4.4 billion ($6.2 billion) last year, driven by SCS losses of $US2.8 billion ($3.9 billion).

Last year was Australia’s third-costliest across total insured natural catastrophe and SCS losses, according to the report.

Swiss Re says the $US107 billion global insured loss fell below the long-term trend due to the absence of a major US hurricane landfall. The total was down from $US141 billion ($199 billion) the previous year.

“This was a favourable draw rather than a reduction in risk. Year-to-year loss volatility reflects natural weather variability and hazard dynamics, but the upward trend in insured losses is structural as exposure keeps building.”

The report says insured losses are still rising 5%-7% a year on average in real terms.

Insured losses comprising natural and man-made catastrophes fell to $US120 billion ($169 billion) from $US151 billion ($213 billion) in 2024.

From the latest Insurance News magazine: We track the big cats – where natural disasters struck last year, and how much it cost the victims and their insurers