Catastrophe-prone Year 2025: Munich Re Issues Warning Signal, Munich Re issues a warning for the impending disaster-laden year of 2025.
The first half of 2025 has seen a significant increase in global losses from natural disasters, with total losses amounting to around $131 billion and insured losses reaching approximately $80 billion. These figures represent the second-highest first-half figures since records began in 1980.
Trends
The majority of recent losses are driven by weather-related disasters, accounting for around 88% of global losses and 98% of insured losses in 2025. Earthquakes contribute a smaller share (~2%) of insured losses. There has been a notable surge in severe convective storms (SCS) in the United States, causing losses comparable to hurricanes due to increased exposure and favorable storm conditions.
2025 has also seen exceptional natural catastrophes, including the costliest wildfire event on record in Los Angeles, major wildfires in Japan and South Korea, a high number of tornadoes in the U.S., and unusual cyclone activity near Brisbane, Australia.
Causes
Climate change and environmental factors play a key role in intensifying extreme weather events such as wildfires, storms, and droughts. Increased urbanization and asset concentration in vulnerable areas have led to higher exposure and thus greater losses when disasters strike. Changes in atmospheric conditions have created more "favorable environments" for storm genesis, particularly convective storms in the U.S.
Implications for the Reinsurance Industry and Investors
The sustained high levels of insured losses put continuous strain on global insurance and reinsurance markets, challenging their capacity and pricing models. Reinsurers face increased risk and volatility, prompting potential shifts towards stricter risk selection, higher premiums, and greater use of alternative risk transfer mechanisms. Investors in insurance-linked securities (ILS) and catastrophe bonds may need to account for increased frequency and severity of payouts, impacting yield and portfolio risk management.
The industry is likely to accelerate efforts to incorporate climate risk modeling and resiliency measures into underwriting, pricing, and investment decisions to adapt to the "new era of climate extremes."
Specific Examples
In Europe, a hailstorm front in France, Germany, and Austria caused around $800 million in damages in June 2025. The conflict of interest: Shares of Munich Re are held in a real-time portfolio of Boersenmedien AG. Wildfires in Los Angeles caused damages of about $40 billion in the first half of 2025, while the rockslide in the Lötschental valley, Switzerland, is estimated to have caused about $400 million in damages.
Impact on Munich Re
Short-term high claims may burden Munich Re, but long-term, they are the basis for further growth in the reinsurance industry. Munich Re is a world market leader in the reinsurance industry for natural disasters and remains the first choice in the sector, given its importance in an increasingly changing world due to climate change.
For investors, the insurability of natural disaster risks is crucial, and Munich Re can demand risk-adequate premiums. In the first half of 2025, Europe was affected by natural disasters to a lesser extent compared to other regions.
Conflict of Interest
The conflict of interest: Mr. Bernd Foertsch, the management and majority shareholder of the publisher Boersenmedien AG, holds direct and indirect positions in the financial instruments of Munich Re.
In summary, rising global natural disaster losses are driven largely by climate-related extreme weather and growing exposure, posing heightened challenges and transformation pressures for the reinsurance industry and investors alike. These trends underscore the critical need for enhanced risk assessment, pricing strategies, and mitigation efforts in the face of a changing risk landscape.
- The surge in severe convective storms and other climate-change-induced extreme weather events has resulted in increased losses for the reinsurance industry, suggesting a need for more climate risk modeling and resiliency measures in underwriting and pricing decisions.
- The exceptional natural catastrophes in 2025, such as wildfires in Los Angeles and hailstorms in Europe, have highlighted the importance of environmental-science knowledge in understanding and mitigating the impacts of climate change on real-estate and financial markets.
- In a rapidly changing world driven by climate change, investors in insurance-linked securities and catastrophe bonds need to carefully consider the increased frequency and severity of payouts, requiring adjustments to portfolio risk management and yield expectations.
