Clarity in Credit

Fire and Floods - Climate Change and the Insurance Industry

Episode Summary

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Jason Graffam, Senior Vice President of Global Sovereign & Financial Institution Ratings, are joined by Marcos Alvarez, Managing Director of Global Financial Institution Ratings to discuss climate change and the insurance industry.

Episode Notes

Natural disasters are becoming more severe and frequent. In fact, total losses from these disasters, including both insured and uninsured losses, reached $318 billion in 2024, which is significantly higher than the 10-year average of $254 billion.  Our analysts discuss these extreme natural disasters in North America and Europe.

Key Highlights

The global insurance industry covered between 39% and 47% of total natural disaster losses in the past five years, which translates to more than $124 billion in claims paid every year. Nevertheless, there is still a significant protection gap between total economic losses and insured losses and closing this gap remains a challenge for the industry.
The Canadian Property and Casualty (P&C) Insurance industry suffered record losses in 2024, and the industry appears to be on pace for another record year of losses in 2025. Amid volatile underwriting results, as mitigating factors, Canadian insurers may choose to limit coverage, increase deductibles, or further raise prices in high-risk areas, especially if global reinsurers reduce their willingness to take on Canadian risks.
Nevertheless, the overall financial and credit performance of the Canadian P&C industry remained resilient, supported by rate increases, reinsurance protections, and favorable investment returns during the year. Insurance issuers in Canada rated by Morningstar DBRS remain well capitalized to absorb the trajectory of natural catastrophe losses observed in 2025.
While many countries have implemented public mechanisms or public-private partnerships to address natural disasters, the Consorcio de Compensación de Seguros (CCS) in the Spanish insurance sector stands out as one of the most comprehensive public solutions available globally. As a public entity, the CCS covers damages generated by extraordinary risks in Spain, including floods, and is funded through surcharges of premiums applied to regular insurance providers.
Nevertheless, given the increasing frequency and severity of weather-related events, there is a growing need for additional government-backed facilities, alongside market-based solutions such as catastrophe bonds.

Related Content:

Line of Fire: How Wildfires Threaten Utility Credit (July 2, 2025), https://dbrs.morningstar.com/research/457577
Navigating a New Normal: 2025 Wildfires Renew Volatility of Natural Catastrophe Losses for Canadian Insurers (June 10, 2025), https://dbrs.morningstar.com/research/455943
Is It Time for an EU-Level Natural Catastrophe Insurance Scheme? (February 24, 2025) https://dbrs.morningstar.com/research/448420
Spain's Costliest Adverse Weather Event in History Anticipated to Drive Total Insured Losses Over EUR 4 Billion (November 14, 2024) https://dbrs.morningstar.com/research/442944
Morningstar DBRS Comments on the Impact of Severe Weather Events in Spain for Insurance Companies, and the Role of the Consorcio de Compensación de Seguros (October 31, 2024) https://dbrs.morningstar.com/research/442341
Could Europe Become Uninsurable Against Catastrophic Weather Events? (May 29,2024) https://dbrs.morningstar.com/research/433343
Extreme Conditions: Exploring Spain’s Drought Impact and the Need for Catastrophe Insurance Coverage (July 19, 2023) https://dbrs.morningstar.com/research/417307

Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter:https://dbrs.morningstar.com/research/458585

By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.