Strong El Niño is rewriting the risk map of the insurance industry

A series of natural disasters caused by climate change not only expose agriculture to the risk of reduced yields, damage transportation infrastructure, undermine the stability of power supply, and put the manufacturing sector at risk of supply chain disruptions, but also impact the insurance industry that provides risk protection for all walks of life. Whether catastrophe risks will affect the overall payout level of insurance companies has become a key topic at the interim performance press conferences of listed insurers.

"Considering the expectation of a strong El Niño this year, it is estimated that catastrophe losses in 2026 will be greater than those in 2025."

On August 31, 2026, at its interim performance press conference, Zhang Daoming, Vice President of People's Insurance Company of China Group Co., Ltd. (601319.SH, hereinafter referred to as "PICC") and President of PICC Property and Casualty Company Limited, talked about the impact of the forming strong El Niño phenomenon on the company.

At the interim performance press conference on August 28, Chen Hui, General Manager of the Property & Casualty Division of China Pacific Insurance (Group) Co., Ltd. (601601.SH, hereinafter referred to as "CPIC"), stated that the biggest challenge currently facing property and casualty insurers is the high incidence and uncertainty of climate-related impacts.

According to the latest forecast from the National Climate Center, the sea surface temperature in the equatorial central-eastern Pacific continues to rise, and it is expected to peak around November to December this year, forming a super El Niño event that will be the strongest on record.

When global warming overlaps with a strong El Niño, extreme weather is further intensified. Since July, more than 20 heavy rainfall processes have occurred in China, and major natural disasters such as heavy rainfall, floods, typhoons and flash floods have occurred in many regions one after another.

A series of natural disasters caused by climate change not only expose agriculture to the risk of reduced yields, damage transportation infrastructure, undermine the stability of power supply, and put the manufacturing sector at risk of supply chain disruptions, but also impact the insurance industry that provides risk protection for all walks of life.

Whether catastrophe risks will affect the overall payout level of insurance companies has become a key topic at the interim performance press conferences of listed insurers.

Net Catastrophe Losses to Rise in the Second Half of the Year

A report released by Munich Re points out that under El Niño conditions, the number of hurricanes in the North Atlantic may be slightly lower than the long-term average, which is conducive to the formation of tropical cyclones in the Northwest Pacific. Therefore, the number of storms in this year's typhoon season may exceed the long-term average (the average of the past 30 years is 24.5 named storms, including 15 typhoons and 8.7 severe typhoons). Under El Niño conditions, typhoon paths usually lean more towards the northeast, meaning they are more likely to affect eastern China, South Korea and Japan; scientists predict that in the long run, climate change may shift typhoon paths to higher latitudes, gradually increasing risks in the East China Sea and Japan. Overall, the overall typhoon risk in Greater China, South Korea and Japan is expected to rise significantly this year.

According to the consultation and analysis released by the Office of the National Commission for Disaster Prevention, Mitigation and Relief and the Ministry of Emergency Management, in July, natural disasters in China were mainly typhoon disasters, floods and geological disasters, and wind and hail disasters, while drought disasters and earthquake disasters also occurred to varying degrees. According to preliminary statistics, various natural disasters affected 16.729 million people across the country to varying degrees, causing 318 deaths and disappearances, with a direct economic loss of 571.5 billion yuan. The direct economic loss data has exceeded the total loss of the first half of the year (421.4 billion yuan).

The payout data of insurance companies shows the same trend.

According to Zhang Daoming, the net catastrophe loss of PICC P&C in the first half of 2026 decreased by about 600 million yuan year-on-year, affecting the payout ratio by about 0.5 percentage points. However, this situation has begun to change since July. As of August 29, the company's net catastrophe loss increased by about 1.9 billion yuan year-on-year, affecting the payout ratio by about 2 percentage points.

It is worth noting that in the first half of this year, the combined cost ratios of PICC, CPIC and Ping An of China were 94.5%, 95.0% and 95.1% respectively. The increase in payouts for natural disasters such as heavy rain and floods will put pressure on the cost control of property and casualty insurers.

When looking forward to the full-year performance of property and casualty business, Chen Hui said that affected by the El Niño phenomenon, extreme weather such as typhoons, heavy rains and mudslides this year have brought challenges to property and casualty insurers.

Strong El Niño Brings Risk Redistribution

Reinsurance companies, which provide risk protection for insurance companies, are equally sensitive to this situation. At the interim performance press conference on August 31, Wang Zhongyao, General Manager of China Property Reinsurance Co., Ltd. (hereinafter referred to as "China P&C Re"), also talked about this topic.

Wang Zhongyao said that the impact of this strong El Niño phenomenon on global catastrophes is essentially a redistribution of risks, rather than a simple increase or decrease in total losses. Although the strong El Niño phenomenon will significantly suppress Atlantic hurricane activity, the tail loss risk of single landing storms still exists. At the same time, it will systematically raise the risk levels of multiple regions and multiple disaster types such as strong typhoons in the Northwest Pacific, tornadoes in the southeastern United States, drought in Australia, floods in South America and southern China, leading to a comprehensive increase in the frequency of global extreme weather.

Wang Zhongyao said that global catastrophe insurance losses in the first half of 2026 are about 35 billion to 47 billion US dollars, the lowest level in nearly five years, and lower than the 10-year average. Catastrophe losses mainly stem from severe convective storm disasters in North America, which have caused at least 26 billion US dollars in insurance losses, but still lower than the average loss in the past five years (38 billion US dollars).

How should the insurance industry respond to the ongoing strong El Niño phenomenon?

Wang Zhongyao said that the impact of the strong El Niño phenomenon on the reinsurance industry is multi-dimensional and profound. The reference value of historical experience models has declined due to the rare climate superposition of global warming, but many institutions warn that underwriting discipline should not be relaxed as a result; the natural disaster insurance coverage rate in the Asia-Pacific region is only about 10%, which faces a huge protection gap under the rising risk of strong typhoons and floods.

For reinsurance companies, Wang Zhongyao said that China P&C Re will respond in five aspects: improving the comprehensive risk management system, strengthening professional capacity building, adjusting business portfolio and pricing, dynamically adjusting the underwriting strategy of international business, and making rational use of retrocession arrangements. For example, in the adjustment of international business, China P&C Re closely follows the changes in the international market rate cycle, flexibly adjusts its international business underwriting strategy, and tilts the front-end underwriting capacity to the insurance types and regions with sufficient market rates and strong professional advantages.

How will insurance companies deal with the disturbance to the combined cost ratio brought by the increase in catastrophe payouts?

Zhang Daoming said that the company has considered the impact of catastrophe costs in its annual budget, and the impact of catastrophes so far is within the expected range. In the pricing process, the company fully considers catastrophe costs. For insurance types with high catastrophe losses such as auto insurance and enterprise property insurance, combined with the research and judgment of catastrophe trends, the company embeds catastrophe costs into the pricing model to improve the adequacy of catastrophe protection rates. In response to the strong El Niño phenomenon, the company has established a risk map of "industry + region + insurance type + disaster cause" under the new El Niño cycle, matched differentiated underwriting plans, and done a good job in management of limits, deductibles and transformation of high-risk businesses.

Risk reduction is also an effective means for insurance companies to cope with extreme weather. Zhang Daoming believes that pre-underwriting wind survey, in-policy inspection and application of results should be strengthened, catastrophe models should be used for accurate pre-disaster inspection and risk control, and the linkage of underwriting and claim settlement "pre-disaster - mid-disaster - post-disaster" should be enhanced.

This article is from the WeChat official account "Economic Observer", Author: Jiang Xin, published with authorization from 36Kr.