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🌪️ '''Severe weather risk''' refers to the [[Definition:Exposure | exposure]] that [[Definition:Insurance carrier | insurers]], [[Definition:Reinsurer | reinsurers]], and [[Definition:Insured | insureds]] face from weather events of unusual intensity — including hurricanes, typhoons, tornadoes, hailstorms, floods, windstorms, ice storms, and extreme convective weather — that can generate large-scale [[Definition:Insurance claim | claims]] across [[Definition:Property insurance | property]], [[Definition:Casualty insurance | casualty]], [[Definition:Agricultural insurance | agricultural]], and [[Definition:Business interruption insurance | business interruption]] lines. In the insurance context, severe weather risk is not simply about meteorology; it encompasses the frequency, severity, and correlation of weather-driven [[Definition:Loss | losses]] and is a central concern in [[Definition:Underwriting | underwriting]], [[Definition:Pricing | pricing]], [[Definition:Reserving | reserving]], and [[Definition:Capital management | capital management]] across global markets.

🔬 Insurers and reinsurers quantify severe weather risk through [[Definition:Catastrophe model | catastrophe models]] developed by vendors such as Moody's RMS, Verisk, and CoreLogic, supplemented by proprietary analytics. These models simulate thousands of potential weather scenarios to estimate [[Definition:Probable maximum loss (PML) | probable maximum losses]], [[Definition:Average annual loss (AAL) | average annual losses]], and tail-risk exposures at various [[Definition:Return period | return periods]]. In the [[Definition:Reinsurance | reinsurance]] market, severe weather risk heavily influences the pricing of [[Definition:Property catastrophe reinsurance | property catastrophe]] treaties and the issuance of [[Definition:Catastrophe bond (cat bond) | catastrophe bonds]] in the [[Definition:Insurance-linked securities (ILS) | ILS]] market. Different geographies carry distinct severe weather profiles — Atlantic hurricane risk dominates U.S. and Caribbean markets, typhoon risk is central to Japanese and East Asian portfolios, and European windstorm and flood risk shapes Solvency II capital requirements — making geographic [[Definition:Diversification | diversification]] a key strategy for managing aggregate exposure.

📈 The growing economic toll of severe weather events, amplified by [[Definition:Climate change risk | climate change]], urbanization in hazard-prone areas, and rising [[Definition:Insured value | insured values]], has made this risk category one of the most consequential forces shaping the modern insurance industry. Regulators worldwide — from the U.S. [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]] to the European [[Definition:European Insurance and Occupational Pensions Authority (EIOPA) | EIOPA]] and Asian supervisory authorities — increasingly require insurers to stress-test their portfolios against worsening weather scenarios. For [[Definition:Underwriter | underwriters]], accurate assessment of severe weather risk determines whether a book of business delivers [[Definition:Underwriting profit | underwriting profit]] or catastrophic loss, and for the broader market, the accumulation of this risk drives the [[Definition:Reinsurance cycle | reinsurance cycle]] and dictates capacity availability for exposed regions.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Catastrophe model]]
* [[Definition:Climate change risk]]
* [[Definition:Property catastrophe reinsurance]]
* [[Definition:Catastrophe bond (cat bond)]]
* [[Definition:Natural catastrophe]]
* [[Definition:Aggregate exposure management]]
{{Div col end}}

Definition:Severe weather risk - Revision history

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