Global natural catastrophe losses could top $200 billion in 2025
AIG CEO Peter Zaffino has issued a forecast for the insurance and reinsurance industry, suggesting that global natural catastrophe losses could top $200 billion in 2025, following the extremely costly wildfires in Los Angeles.
Zaffino highlighted the growing reinsurance holdings and the ever-increasing costs of natural catastrophes, especially wildfires and other secondary risks, which are becoming a major concern for the industry.
The devastating wildfires in California demonstrate how catastrophic losses have increased in recent years. Zaffino said the estimated insured losses from these fires are around $40 billion, although some estimates are as high as $50 billion. At the same time, the total economic losses could exceed $250 billion, creating a protection gap of up to 80%.
“The California wildfires show how losses from secondary risks are growing and how large tail events can be, which are poorly captured in risk models,” he explained, emphasizing that catastrophic losses from fires far exceed traditional forecasting models.
According to Zaffino, 2025 could be one of the most expensive years for the insurance industry.
“If we take the upper limit of the California wildfire loss estimate at $50 billion, add the average annual insured loss over the past 8 years, and assume an active but not abnormal hurricane season, which is realistic given warmer-than-ever ocean temperatures, 2025 could bring more than $200 billion in insured catastrophic losses. This could change the balance across the industry,” he warned.
With the change in reinsurance retention, major insurers are now taking on a larger share of catastrophic losses.
“In 2023 and 2024, major insurers retained approximately 90% of insured natural catastrophe losses, while reinsurers covered 10%,” he noted. This is in stark contrast to previous years, when reinsurers traditionally took on a significant portion of losses, helping to spread risk more evenly across the industry.
The main driver of the increase in losses is the increase in the intensity and frequency of natural catastrophes, including wildfires, floods and severe convective storms.
Wildfire losses have grown particularly sharply over the past decade. Average annual insured losses have doubled from $4 billion to about $8 billion globally, with the largest increase in the United States.
“The average annual insured loss from 2000 to 2024 was approximately $4 billion globally, of which $3.5 billion was in the U.S.,” Zaffino explained.
This projection shows how much the industry has changed in recent years. “Fifteen years ago, $100 billion, adjusted for inflation, was considered the threshold for an extremely expensive catastrophe year. But with the average over the past eight years exceeding $140 billion, that approach is already outdated,” he added.