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The Mounting Cost of Climate for Insurers

Climate-related disasters are leading to increased claims across the insurance industry. As floods, heat waves, fires, and extreme weather becomes more common, insurers are re-evaluating their exposure.

Wildfires in Canada

Canadian Gas Production Slumps as Alberta Wildfires Heat Up

Total Canadian gas production was estimated at 17.7 Bcf/d June 7—down from a peak of more than 18 Bcf/d in late May. Prior to the outbreak of wildfires across Alberta in early May, Canadian gas production had averaged about 18.5 Bcf/d from January through April, legacy IHS PointLogic data from S&P Global Commodity Insights showed.

The rebound in western Canadian natural gas production has stalled this month, as wildfires across Alberta have accelerated recently amid dry weather and heat warnings from government authorities.

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'Unprecedented' Canadian Forest Fires Disrupt Quebec Mines, Exploration

Massive forest fires scorching swaths of Quebec in recent weeks have forced some gold miners to suspend operations and many explorers to halt fieldwork due to safety concerns and restricted access to public lands.

The fires pummeling Canada during an unusually dry spring have burned 3.3 million hectares across the country and affected more than 100,000 people under evacuation orders, according to the Canadian government. Some of the worst fires are raging in Quebec, Canada's top province for exploration budgets in 2022 and a major hub for the country's mining sector.

On June 3, Quebec expanded rules that bar access to much of its forested public lands, which cover the vast majority of the province. The restrictions affect almost all of southwestern Quebec, including regions near mines and prime exploration grounds.

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Listen: The Cost of Wildfires and Inflation on Canadian Crude Production

About this episode

Canada's crude production has been reduced in recent weeks by wildfires in Alberta, tightening price discounts for some Canadian crude grades. While the bulk of output has returned, and longer-term output is expected to rise 500,000 b/d by 2030, high development costs are threatening that outlook, with Equinor announcing a delay of its Bay du Nord project.

S&P Global Commodity Insights' Jeff Mower, director of Americas oil news, discusses these market conditions and their impacts with Americas crude pricing reporter Julia Pecha and Calgary correspondent Ashok Dutta.

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Climate Risk & Resilience

The majority of companies today are exposed to physical assets at risk due to climate change. Understanding how to prevent or mitigate billions of dollars’ worth of climate risk is essential.

Extreme Weather & Climate-Related Disasters

Hurricane Ian Weighs Heavy on Property Insurers' Q3 Catastrophe Losses

Damage from Hurricane Ian led to significant catastrophe losses for many large property-casualty carriers and reinsurers and for Florida's insurer of last resort, Citizens Property Insurance Corp., during the third quarter of 2022.

Many of the reporting companies in the S&P Global Market Intelligence analysis were affected by the hurricane, which hit the southwest coast of Florida as a Category 4 storm on Sept. 28 with 150 mph winds and dumped over 10 inches of rain on the state.

Berkshire Hathaway Inc.'s insurance and reinsurance operations reported catastrophe losses of $3.4 billion from Ian, the highest of any insurer that has reported specific losses.

Citizens Property, the largest insurer in the Sunshine State, reported a catastrophe loss total at $2.6 billion. The company had processed 100,000 claims from policyholders affected by Ian as of Oct. 14, according to an email from company spokesman Michael Peltier.

Several of the smaller Florida-centric carriers reported losses as well. HCI Group Inc. reported $78 million in losses from Ian, Heritage Insurance Holdings Inc. had $40 million and United Insurance Holdings Corp. absorbed losses of $36.4 million.

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Winter storm chills US P&C stocks ahead of earnings season

A recent winter storm sent a chill down the spines of investors as the wintry weather that plagued North America in December 2022 resulted in higher-than-expected losses for property and casualty insurers.

Last month, a winter storm cut a path across North America, killing more than 60 people, stranding thousands during the busy holiday season and racking up a damage total of approximately $5.4 billion across 42 U.S. states.

The impact of the storm was felt by various property and casualty insurers, including The Travelers Cos. Inc., which on Tuesday reported $459 million of pretax estimated catastrophe losses, or $362 million after tax, net of reinsurance. The company expects to report net income of $819 million, or $3.44 per share, and core income of $810 million, or $3.40 per share, for the quarter.

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Listen: How the Price Tag on U.S. Climate-related Disasters Hit $165 Billion in 2022

About this episode

In 2022, the world experienced major climate-related disasters ranging from flooding and hurricanes to drought and extreme heatwaves. Moreover, 2022 was the sixth-warmest year on record, according to scientists at the U.S. National Oceanic and Atmospheric Administration, or NOAA.

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S&P Global Climanomics

On a mission to embed climate data into every economic decision on earth in order to accelerate an equitable transition to a low-carbon economy.

Property & Casualty Insurance

U.S. Property/Casualty Insurers Face Declining Investment Values And Personal Lines Loss Cost Inflation

S&P Global Ratings recently revised its view on the U.S. property/casualty (P/C) sector to negative from stable, reflecting our expectation of weaker credit trends over the next 12 months, including more negative than positive rating changes and a negative shift in the distribution of rating outlooks. S&P Global Ratings' view on the sector reflects several factors, including:

  • The negative impact on GAAP capital from rising interest rates and the consequent decline in the market value of fixed-income portfolios captured within accumulated other comprehensive income (AOCI);
  • The negative impact on statutory capital and reported GAAP earnings from the decline in the value of equity investments;
  • A steady rise in required capital to fund ongoing business growth;
  • Higher levels of capital returned to shareholders; and
  • Weaker underwriting results due to elevated natural catastrophe losses, including losses from Hurricane Ian, and higher claims costs, particularly in personal lines.
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U.S. Property & Casualty Insurance Market Report: Climate, Cyberrisks To Drive Expansion

Efforts by U.S. property and casualty insurers to more accurately match rate to risk will drive outsized premium growth in those business lines and geographies most exposed to emerging perils.

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U.S. Property & Casualty Insurance Market Report: Personal, Commercial Auto Fortunes Flip

Commercial auto consistently ranked as one of the U.S. property and casualty industry's worst-performing lines prior to the pandemic, but recent results suggest that the tide has at least temporarily turned.

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Global Insurance Markets: Inflation Bites

Inflation, and to some extent, competition, in motor and medical lines should drag on insurers' underwriting performance in 2022-2023. However, despite macroeconomic headwinds, insurance is one of the highest rated sectors globally. The report highlights our 2023 forecasts for key performance metrics, notably in relation to market profitability and growth.

Key Takeaways

  • Inflation, and to some extent, competition, in key retail lines (motor and medical) should drag on insurers' underwriting performance in 2022-2023.
  • Return on equity (ROE) could deviate from our forecasts, since investment results remain uncertain and may be volatile.
  • The increase in interest rates by central banks to tackle inflation is causing mark-to-market losses. However, many insurers hold their fixed-income portfolios to maturity, so these unrealized losses are unlikely to fully crystallize.
  • Reduced purchasing power due to the increased cost of living may slow premium growth, notably for life insurers. In contrast, many property/casualty (P/C) lines are mandatory, and P/C insurers are increasing premiums to adjust for inflation.
  • For many life markets that are still exposed to traditional products with guarantees, the rising interest rate environment should ease the pressure on capital and reserve requirements.

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Insights from S&P Global Ratings on the challenges and opportunities the insurance sector faces– such as disruption from new technologies, cyber security and low interest rate levels.


Berkley Gets Feet Wet in Property Catastrophe Reinsurance; P&C Stocks Up

W. R. Berkley Corp. took advantage of some opportunities in the property catastrophe space during the most recent reinsurance renewal season but is holding off on taking a deeper dive into the market for now.

"We put more than a toe in the water, but not more than a foot, and that's just because of our view of volatility," CEO Rob Berkley said during an during a conference call. "In addition to that, we're going to see what type of opportunities there are in the first quarter and the balance of the year, particularly with some shortfalls in certain market participants' covers."

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La. Insurance Regulator ‘Optimistic’ on Cat Reforms Despite Reinsurance Squeeze

  • Louisiana's insurance commissioner hopes the state's new capital rules will spur carriers to buy more reinsurance even though coverage is getting scarcer and more expensive.
  • Although in "crisis," Louisiana's homeowners' insurance market is not the "next Florida waiting to happen."
  • Jim Donelon, the state's longest-serving insurance commissioner, confirmed he will run for reelection in 2023.

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Climate & Environmental

Sustainable1 Solutions

Assess environmental footprints, take a deep dive into high impact sectors, conduct climate scenario analysis and evaluate your alignment with market frameworks designed to inform the transition to a low carbon, sustainable and equitable future with our comprehensive climate and environmental datasets.

Path to Net-Zero

Europe’s Insurers Stand Firm on ESG Goals Amid Energy Crisis

European insurers' and reinsurers' shorter-term goals to cut underwriting emissions are under pressure as several countries across the continent return to fossil fuels to stave off energy shortages triggered by the Russia-Ukraine war.

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Get-Out Clauses Undermine Insurers’ Climate Targets

Several global insurers have recently announced more ambitious strategies to cut carbon emissions from their underwriting and investment portfolios, but exceptions and gaps in their policies cast doubt on the likely effectiveness of those targets.

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ESG Materiality Map: Insurance

Environmental and social factors are material from both the stakeholder and credit perspectives, but less so than for most industrial sectors. Access and affordability, privacy protection, and climate transition and physical climate risks are among the most material factors.

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