Could Canada’s record Cat loss spark a new peril definition?
In the wake of almost $9 billion in natural catastrophe losses in 2024, it may be time for insurers to redefine primary or “peak perils,” says Jolee Crosby, Swiss Re Canada CEO.
“Instead of having that one huge hurricane that completely changes the landscape, now you have multiple $1-billion, $2-billion events that, from an accumulation perspective, still is the same amount as one large event,” Crosby said at Swiss Re’s Canadian Insurance Outlook Breakfast in April. “It’s really how we think about it, but then how we model it, how we price for it, and how we communicate about it — it’s a whole paradigm shift.
“So we have to think differently about how peak perils are defined, because it’s only through that we can adjust and again create a stronger, resilient insurance ecosystem for society.”
Crosby became Swiss Re’s CEO of Reinsurance Canada in July 2023. And the number of natural catastrophe losses in Canada have ramped up considerably even during that time.
“When I first came to Canada and I was looking at the historical loss trends, if you told me we would have had an $8- or $9-million [loss] year, I would have said, ‘No way.’ Because if you look at the history, while it has been going up, it has now hit another level,” she said.
“Last year, we had four different events that were over $1 billion each,” Crosby added in a media briefing. “We’re having more and more of those in Canada, and I think we need to expect that.”
Between July and August 2024 alone, four major events together surpassed $7 billion in insured damages.
Summer floods in Ontario and the Greater Toronto area exceeded $1 billion in insured losses. The remnants of Hurricane Debby that travelled across southern Quebec caused more than $2.5 billion in insured damage. The wildfire that damaged or destroyed a third of the community of Jasper, Alta., caused an estimated $1.23 billion in damages. Then, a record-breaking hailstorm in the Calgary area in early August resulted in nearly $2.8 billion in insured losses and became Canada’s second-costliest NatCat in history.
All of these events are considered “secondary” perils. So-called secondary perils happen more frequently than primary or “peak” perils such as earthquakes, tsunamis, etc., and they tend to generate low- to medium-sized losses, per Swiss Re. Examples would be floods, wildfires, or severe weather events such as hail.
The increasingly oversized nature of losses arising from “secondary” perils means insurers and reinsurers should rethink what counts as a “peak” peril, Swiss Re says.
Urs Baertschi, Swiss Re’s CEO of P&C Reinsurance, said in the media briefing, “secondary doesn’t mean that it’s a lesser peril. What’s behind [the definition] is that each individual event’s losses [are] small, but there are a lot more of them.”
In fact, the number of secondary perils has increased 60% over the last 30 years, according to Swiss Re. “This is a big, big part of the natural catastrophe environment that we face — it’s not just the big earthquakes and the big hurricanes.”
Plus, secondary perils tend to be more localized and thus don’t generate as much attention. Therefore, modelling for secondary perils lagged behind “for a number of years” says Baertschi. “In the last 10 years, there’s been a massive catch-up around this.
“Models are always, by definition, just models — they will be wrong. But there’s a higher awareness and costing for what is going on out there,” he said. “Some of these secondary parallel events..[cost] billions apiece, as opposed to a couple of millions.”
