The 2026 El Niño could alter catastrophe risk across multiple regions and perils, creating implications for insurers and reinsurers as they assess potential changes in insured losses, portfolio accumulation and diversification, according to Moody’s, the global risk assessment firm that provides credit ratings, research, data, and analytical tools for financial markets.
The company’s latest assessment examines how El Niño, the warm phase of the El Niño-Southern Oscillation, can affect weather patterns well beyond the tropical Pacific by changing sea surface temperatures, trade winds and atmospheric circulation. These changes can influence regional temperatures, rainfall and storm activity through large-scale weather patterns.
For the insurance market, the significance is that the effects are not uniform. Moody’s says El Niño can increase the risk associated with one peril while reducing exposure to another, potentially changing the overall loss profile of an insurer or reinsurer’s portfolio.
In Australia, for example, the company says El Niño tends to increase heat and dryness, raising bushfire risk by more than 50% compared with non-El Niño years, while potentially reducing tropical cyclone risk. Moody’s explains that this interaction between perils is important for catastrophe modelling because a single simulation year can contain an El Niño event that increases bushfire risk while reducing tropical cyclone, flood, wind and storm surge risk. The company argues that modelling individual perils in isolation can therefore overlook the way risks interact across regions and over time.
The current El Niño was confirmed by NOAA in June, when unusually warm Pacific sea surface temperatures were consistent with the phenomenon, and Moody’s says the event has strengthened since then. The company notes that the North Atlantic hurricane season has so far been relatively subdued, while the Eastern and Central North Pacific have experienced above-average activity.
Moody’s notes that above-average vertical wind shear is expected to continue suppressing tropical cyclone formation in the North Atlantic through the end of the season. However, it also notes that unusually warm Atlantic waters could support rapid intensification if a hurricane does form, meaning a relatively quiet season does not necessarily remove the potential for a significant insured loss.
The company points to previous hurricane seasons as an illustration of the distinction between overall seasonal activity and individual event risk. Moody’s says North Atlantic hurricane seasons associated with El Niño have typically produced lower overall insured losses than the long-term modelled annual average, while La Niña seasons have generally produced higher losses. However, it adds that a single landfalling hurricane can still generate substantial losses regardless of the wider ENSO phase.
Moody’s cites Hurricane Ida in 2021 as an example, saying insured losses exceeded USD $30 billion despite the previous year having recorded the most active North Atlantic hurricane season on record. It also notes that Hurricane Ian generated more than USD $53 billion in insured losses in 2022, despite overall hurricane activity being broadly average that year.
The implications extend beyond the US. Moody’s says El Niño is expected to contribute to drier Asian monsoon conditions, with potential consequences for agricultural production, including rice and palm oil yields. In Europe, the effects are generally more indirect, although Moody’s says background warming may have amplified heatwaves and contributed to severe wildfires in France and Spain.
Australia presents a more unusual picture. Moody’s says the country is experiencing its wettest El Niño year on record, despite El Niño typically being associated with drier conditions. The company says the eventual impact remains uncertain because the current event is expected to peak in the coming months.
For Australian insurers and reinsurers, Moody’s says the potential shift from unusually wet conditions to a hotter and drier period could be significant. While increased rainfall could reduce bushfire risk in the short term, the company notes that a transition from very wet to very dry conditions can increase the risk of a major bushfire by increasing available fuel, particularly when combined with hotter-than-normal conditions.
Moody’s says its natural catastrophe modelling work incorporates the relationships between individual perils and the wider climate conditions that can influence them. The company says its models are designed to consider correlation and diversification, including circumstances in which the same climate phenomenon raises one category of risk while reducing another.
The company also notes its latest wildfire, tropical cyclone and flood model releases for Australia incorporate connections between these risks and climate events such as El Niño and La Niña. Moody’s argues that this type of portfolio analysis is important for insurers and reinsurers seeking to understand how interconnected climate events can affect accumulated exposure and the potential need for risk transfer.
For insurers and reinsurers, Moody’s concludes that incorporating interconnected climate events such as El Niño and La Niña into portfolio analytics is important for assessing how risk accumulates and understanding the available options for transferring that risk.
