128
FORTUNE.COM // NOVEMBER 2019
N A RADIANT SUMMER DAY,
all looks precisely right on the
shore of Switzerland’s Lake
Zurich, at the headquarters
of global insurance behemoth
Swiss Re. The postcard-perfect
harbor bustles with bronzed sun-
bathers, dark-hulled yachts, and
picnickers sipping wine. On the
street alongside it, cyclists duti-
fully ring their handlebar bells for pedestrians, and
blue-and-white city trams run on time. Inside the
headquarters itself—a complex comprising a 1913
neobaroque edifice and a 2017 addition sheathed in
undulating glass—art worth millions adorns white
walls, coffee bars accented in leather and steel
dispense mineral water in three levels of carbon-
ation, and the employee cafeteria serves up chilled
melon soup with mint, organic tofu with mango
chutney, and fruit tarts and ice cream.
Yet things are anything but placid for Swiss Re, the 155-year-old
corporation that, as measured by the $36.4 billion in revenue it
collected from premiums in 2018, is the world’s largest “reinsur-
ance” company. Executives anxiously are weighing the insurer’s
financial exposure to some of its biggest clients. Ph.D. scientists
are poring over algorithms to figure out how to cope with balloon-
ing costs. Under intensifying pressure, they’re questioning much
of what they know about assessing risk—and making decisions
that could redirect billions of dollars.
Little known but crucial to commerce, reinsurers act as backstops
of the global economy. They insure major multinationals, huge in-
dustrial facilities, and vast portfolios of risk that first-line insurance
companies decide they need to hedge. That makes them leading in-
dicators of the condition of capitalism—sprawling enterprises paid
to ferret out and manage emerging mega-threats. Today, the threat
that particularly worries Swiss Re is one that, like essentially every
other company on the planet, it hasn’t figured out how to accurately
quantify, let alone to combat: climate change.
For the insurance industry, global warming has advanced from
a future ecological challenge to a present financial shock. Together,
total losses to the economy from natural catastrophes and “man-
made disasters” reached $165 billion in 2018; that followed a 2017
that, at $350 billion, cost more than twice as much. As a result, ac-
cording to the Swiss Re Institute, the company’s research arm, 2017
and 2018 were for insurers the most-expensive two-year period of
such catastrophes on record, requiring them to fork over $219 bil-
lion globally in checks. The majority of the insurers’ 2018 payouts
were in North America, triggered by wildfires, thunderstorms, and
hurricanes. The economic impact from catastrophes in 2018 alone
was “shocking,” Christian Mumenthaler, Swiss Re’s chief executive,
told shareholders this past March, in the company’s 2018 annual
report. And Swiss Re is convinced, Mumenthaler made clear, that
the trend is linked to rising temperatures: “What we’ve experienced
over the past year must serve as a wake-up call to stand together in
unity and step up our efforts against climate change.”
Ups and downs are old hat to the insurance
industry. Over the past two decades, Swiss Re’s
natural-catastrophe business has collected more
than twice as much in premiums as it has had to
spend in payouts. The company’s stock price is
robust, and rating agencies generally give Swiss
Re high marks. But a potentially worrying trend
is developing: For the past two years, Swiss Re
has had to pay out vastly more for large natural
catastrophes, those over $20 million apiece, than
its models anticipated for an average year’s loss.
In 2017, Swiss Re expected to incur $1.18 bil-
lion in large “nat-cat” losses, based on actuarial
averages, but racked up a bill of $3.65 billion. In
2018 it anticipated a $1.15 billion hit but had to
absorb $1.9 billion. The biggest single blow that
year came from hurricanes—the intense storms
that originate in the North Atlantic and North-
eastern Pacific. The question is whether this is
a rough patch of the sort Swiss Re has absorbed
before, or the start of a long-term rise in losses
triggered by climate change.
Now the insurer is undertaking a corporate
repair job designed to insulate its profits from
the heat. Believing that the profitability of coal
is on the wane, it’s pulling back from insuring
and investing in companies that mine or burn
the black rock—a retrenchment that has some
of its blue-chip clients fuming. Worried that the
complex mathematical models it uses to predict
and then “price” coverage for natural-disaster
risks need serious rethinking to account for
a warming world, Swiss Re is scrambling to
improve them. These are potentially pivotal fixes
that could have sweeping consequences for busi-
ness. But each is in its nascent stages, and each is
proving maddeningly hard.
One morning this summer, I find myself in
a conference room in Swiss Re’s complex in
Zurich, sitting across a table from Thierry Corti,
a lanky Ph.D. climate scientist who works as the
company’s head of sustainability-risk manage-
ment. “We think day and night about what can
go terribly wrong in this world,” he tells me. But
climate change, he says, “might be the problem
that humanity is not clever enough to really
tackle.” As if as an omen, my visit marks the start
of a weeklong heat wave that will shatter tem-
perature records across Switzerland and Europe.
HROUGHOUT the financial sector,
leading players, from banks to
pension funds to insurers, are
deciding they could lose big from
climate change. Broadly, they cite
two threats to capital in a warming world.
One, “transition risk,” is the specter that
