Jerome Jean Haegeli, chief economist at Swiss Re Group, said that as the world faces huge geopolitical uncertainty and volatility, oil price movements driven by the ongoing conflict in the Middle East are expected to push up consumer price inflation (CPI), which may increase insured losses in peak loss events.
Current tensions in the Middle East are causing a major shock to the entire system, leading to slower economic growth and higher inflation. Haegeli said oil price trends provide a clear indication of how the Consumer Price Index (CPI) evolves under different price scenarios.
“In terms of rising inflation, we expect CPI to rise by around 1% to 1.5% in both the US and European main scenarios, with Europe likely to be more affected,” Haegeli said.
As for what this means for natural catastrophe losses, especially how peak losses may develop over time, Haegeli said, “Every percentage point increase in consumer price inflation represents peak losses, which means a once-in-a-decade event will result in approximately $420 billion in insured losses by 2030.”
Haegeli further emphasized: “From our analysis of the Sigma report, this is a shock, a loss peak shock, which for the reinsurance industry means a drop in solvency ratios of about 40% to 50%, so this is very significant.”
Swiss Re highlighted the importance of closing the protection gap in a recent report from the Swiss Re Institute, which showed that secondary hazards such as severe convective storms (SCS), floods and wildfires will account for 92% of global insured losses in 2025.
Reinsurers face a dual challenge: high inflation and increasingly frequent secondary risks, which require disciplined underwriting and strong capital reserves.
Rising claims and repair costs due to inflation will test the industry’s ability to manage extreme risks, which will be further tested by the severity of peak events and the accumulation of smaller weather-related losses.
Hagley concluded: “The global reinsurance industry exists precisely to manage the tail, and to that end, a well-capitalized reinsurance industry is also critical to resilience in today’s world and ensuring that protection gaps continue to close.”
Swiss Re first warned on ReinsuranceNe.ws that geopolitical fluctuations are driving up the consumer price index (CPI), amplifying future peak loss costs.