Super El Niño is coming: The insurance industry faces a "big test" of extreme weather and the reshaping of pricing logic

Recently, the World Meteorological Organization issued a bulletin confirming that the El Niño phenomenon has formed and will continue to strengthen. It is expected to develop into a "super strong level", which will have a major impact on global precipitation and temperature patterns. Related extreme weather risks may continue until February 2027.

Under the influence of El Niño, disaster risks such as floods, droughts, typhoons and extreme heat have been systematically pushed up. The insurance industry, which is at the forefront of risks, is facing an unprecedented test.

Judging from the disclosed interim results of listed insurance companies, PICC Property & Casualty’s net catastrophe losses originally fell year-on-year in the first half of the year, but by the end of August, they had increased by approximately 1.9 billion yuan year-on-year. The rising pressure on the claims side is just a symptom. The deeper proposition is: Facing this super strong El Niño, which is expected to last until early 2027 and may rewrite the global risk map, how should the insurance industry coexist with extreme weather and do a good job in risk control, claims settlement and other related work?

Industry insiders said in an interview with a reporter from "Daily Economic News" that this round of super strong El Niño is a preview of the normalization of extreme weather under the background of climate change. This will drive profound changes in the insurance industry.

Has affected the claims settlement side of the insurance industry

When global warming superimposes El Niño, extreme weather will further intensify, and major natural disasters will occur frequently. Not only will agricultural production be reduced, transportation infrastructure will be damaged, power supply stability will decrease, and the manufacturing industry will face the risk of supply chain interruption, it will also have a huge impact on the insurance industry.

Recently, the World Meteorological Organization believes that the El Niño phenomenon has formed and will continue to strengthen. The main impact of El Niño in China is increased rainfall. Gao Rong, deputy director of the National Climate Center, said at a press conference of the China Meteorological Administration that due to the influence of El Niño, my country's Yangtze River Basin and most areas south of it will receive more precipitation in autumn. Among them, Jiangnan and the eastern part of the southwest region have significantly more precipitation, and the probability of extreme precipitation events is high. The temperature in the eastern part of the southwest and South China and other places is obviously higher, and there will be periodic high temperature weather processes in September.

For the insurance industry, the most direct manifestation of this phenomenon is the increase in claims. A report released by Munich Re pointed out that the super El Niño is approaching. One of the direct impacts is that the location of the typhoon in the northwest Pacific is eastward. It stays on the warmer ocean for longer, may be more intense, and its path also tends to move northward. This means that the natural disaster risks faced by our country in the second half of this year cannot be ignored.

Claims data from domestic insurance companies show the same trend as the above predictions. "In the first half of 2026, the company's net catastrophic losses decreased by about 600 million yuan year-on-year, affecting the loss ratio by about 0.5 percentage points. However, from July 1 to August 29, the new net catastrophic losses increased by about 1.9 billion yuan year-on-year." Zhang Daoming, vice president of PICC Group and president of PICC Property & Casualty Insurance, said at the interim results conference that considering the expectations of this year's super strong El Niño, catastrophic losses in 2026 are expected to be greater than in 2025.

But the overall pressure on the compensation side is still controllable. According to Wang Zhongyao, general manager of China Re Property and Casualty Insurance, global catastrophe insured losses in the first half of 2026 will be approximately US$35 billion to US$47 billion, the lowest level in the past five years and lower than the 10-year average. He also said that the company's overseas business's net losses from natural catastrophes in the first half of 2026 are generally controllable.

However, the impact of super strong El Niño on the insurance industry cannot be ignored. "The intensity of the El Niño event developing in 2026 is rare and is expected to last until early 2027. The impact on global catastrophes is essentially a redistribution of risks, rather than a simple increase or decrease in total losses. Although it will significantly suppress Atlantic hurricane activity, the tail loss risk of a single landfalling storm will At the same time, it will systematically push up the risk levels of multiple regions and disasters such as strong typhoons in the northwest Pacific, tornadoes in the southeastern United States, droughts in Australia, floods in South America and southern my country, and the frequency of extreme weather globally will increase overall. "Wang Zhongyao said that this pattern has a multi-dimensional and profound impact on the reinsurance industry.

It may reshape the underlying logic of pricing

According to Wang Zhongyao, many institutions have issued warnings reminding that underwriting disciplines cannot be relaxed. It is estimated that the natural disaster insurance coverage rate in the Asia-Pacific region is only about 10%, facing a huge protection gap in the context of rising risks of strong typhoons and floods. “Overall, what the super strong El Niño brings is not a good thing, but a severe test for reinsurance companies’ global risk diversification capabilities, dynamic model adjustment capabilities, and underwriting discipline in the pricing downward cycle.”

This view is recognized by industry insiders. Li Wenzhong, deputy director of the Rural Insurance Research Institute of Capital University of Economics and Business, said in an interview with a reporter from the Daily Economic News: "Traditional actuarial methods are based on the key assumption that the annual potential loss probability is roughly stable. However, when extreme weather once in a century becomes more and more frequent, models based on limited historical data lose the foundation for predicting the future. The current insurance industry's ability to identify and quantify climate risks is relatively weak, and traditional actuarial models are difficult to cope with the nonlinear and systemic risks brought by climate change."

Li Wenzhong believes that model iteration is not a simple repair, but a reshaping of the underlying logic. First, models must shift from relying on historical data to forward-looking scientific predictions; second, more complex catastrophe models need to be used to simulate potential losses under various extreme climate scenarios; third, model parameters must be dynamically updated based on real-time data on climate change.

In terms of risk reduction, the insurance industry needs to move from post-disaster compensation to pre-disaster prevention. The key to future competition will be who can more effectively help customers manage risks and reduce losses. During this process, insurance companies need to transform into a full-cycle, proactive risk manager and use technology to continuously improve risk management capabilities.

At the same time, challenges on the claims side are intensifying. Under the frequent and high-intensity impact of extreme weather, the number and amount of claims will continue to rise, which puts direct pressure on the cash flow and solvency of insurance companies.

In addition, it will become standard for the insurance industry to use technology to achieve quick compensation after disasters. As risks rise, premiums in some high-risk areas may rise sharply, or even create an insurance vacuum. This requires the industry to cooperate with government departments to explore more sustainable risk-sharing mechanisms.