Guy Carpenter’s Matthew Eagle and Francois Dagneau on how quantifying risk across perils is becoming vital to managing risk and adapting business strategies
Across Europe, reinsurance limits and capital requirements have typically been driven by windstorms for Northern Europe and by earthquakes for the Mediterranean region. In Central and Eastern Europe, flood is also a driver for reinsurance and capital requirements, with the loss potential illustrated by significant floods of 2002 in the Czech Republic and 2021 in Germany. The 2023 Kahramanmaras Earthquake in Turkey was a timely reminder of the potential for large earthquake losses, and we have seen significant local impacts of earthquakes in Italy and Morocco.
However, an analysis of all catastrophe losses in Europe above $100 million over the past 12 years highlights that insured losses have been dominated by other perils. Between 2021 and 2024, we observed insured losses of almost $70 billion (indexed to 2025), approximately $17 billion per annum, with approximately $28 billion (40%) attributable to flood and another $22 billion (32%) from severe convective storm. Numerous factors, including inflation and urbanisation, have driven increased losses, but many of these higher-frequency perils are also impacted by climate change already being experienced.
We are also experiencing widespread wildfires across Europe. Wildfires in Spain this year were the worst in 30 years, almost quadrupling the average annual area burned. While climate change plays a role, unmanaged forest land can amplify the availability of fuel for wildfires. Wildfire impacts are usually most pronounced on the environment, agricultural land and forests, but we have observed the potential for significant property and motor damage as well.
With cedants carrying higher reinsurance retentions after the 2023 renewal season, much of the higher-frequency small- to medium-sized losses are being retained by insurers. As a result, there is an increased focus on underwriting and pricing of natural perils risks and on portfolio accumulation management to avoid surprise losses.
New models are being released by established vendors and a number of new model providers, including Guy Carpenter, allowing clients to quantify the impact of these perils on underwriting, volatility and capital. We conduct thorough evaluation of models using our proprietary Model Suitability Analysis (MSA) framework to develop our view of risk and support clients as they form their own views for their portfolios. Model adjustments are documented and communicated to both insurers and reinsurers to ensure broad market adoption. A recent example is Guy Carpenter’s presentation of our Europe Severe Thunderstorm model adjustment to the reinsurance market.
Key to underwriting, pricing and portfolio management, Guy Carpenter’s global multiperil risk ratings allow our clients to assess the materiality of perils at any location. As these datasets incorporate estimates of annual average loss, they allow direct quantification, measuring and modelling cash flows and financial outcomes that would be ceded to a reinsurer under different loss scenarios. These datasets allow risk to be aggregated to identify hotspots and manage accumulation risk.
In Italy, with the introduction of the new nat cat law, our earthquake and flood risk data has enabled us to advise clients on how to manage portfolio risk. In addition, within a changing climate and with events such as wildfires and floods becoming increasingly frequent and widespread, consistently quantifying risk across perils globally is becoming vital to manage risk and adapt business strategies.
Guy Carpenter looks beyond our current baseline view of risk to quantify how peril risk will change under future global warming scenarios. These are used by insurers to support regulatory stress tests and reporting, and to develop a strategy to manage changing risk. Resilience and risk mitigation together with sustainable insurance have become key parts of this conversation.