Page 42 - The Insurance Times July 2025

Risk Report

Swiss Re SONAR 2025 Report

Introduction ist environments. This may limit global diversification for
reinsurers and pressure them to adjust capital alloca-
The Swiss Re SONAR 2025 report offers deep insight into
emerging and evolving risks that could impact the global in- tion and risk selection strategies.
surance landscape in the coming years. Built on forward-
looking research, expert insights, and scenario analyses, 3. Climate Risk and Environmental Tran-

SONAR provides insurers, policymakers, and businesses with sitions
a proactive view of potential disruptions. The 2025 edition
A. Accelerated Climate Events and Secondary
centers around six macro themes: geopolitical fragmenta-
Perils
tion, digital transformation, climate change intensification,
societal shifts, bio-related risks, and financial market Climate change is no longer a long-term issue-it's pro-
volatility. ducing immediate and compounding effects. Floods,
wildfires, and heatwaves, categorized as secondary
1. The Nature of Emerging Risks perils, are increasing in frequency and severity. These
risks are less modeled than primary perils (like hurri-
The SONAR report defines emerging risks as newly develop-
canes) and thus can lead to underestimated exposure
ing or changing risks that are difficult to quantify and may
and unanticipated loss ratios for insurers.
have a broad impact. These include slow-burn developments
like shifts in societal norms or technology, as well as fast- B. Geoengineering and Climate Intervention
developing threats like geopolitical instability or The report explores the growing discourse around
cyberattacks. The report emphasizes the need for early geoengineering-technologies designed to modify Earth's
recognition and strategic adaptation, especially in the in- climate systems (e.g., solar radiation management).
surance sector, where risk foresight is critical for resilience. While these may reduce warming, they introduce un-
intended environmental risks and legal liabilities. Insur-
2. Geopolitical Shifts and Regulatory Risk ers must be prepared to assess the long-tail liabilities
A. Sanctions and Cross-Border Fragmentation of such interventions.
Geopolitical fragmentation continues to intensify as na- C. Green Transition Risks
tions impose sanctions, restrict foreign investments, and The global move to decarbonization, while necessary,
reconfigure trade routes. This trend can disrupt global introduces transition risks such as stranded assets in
supply chains, limit access to insurance markets, and fossil fuel industries, regulatory penalties, and shifts in
lead to regulatory divergence. Insurers operating inter- energy insurance underwriting. Emerging environmen-
nationally face increased compliance costs and uncer- tal standards could also lead to legal action against
tainty over coverage validity in sanctioned or politically firms for not adapting quickly enough.
unstable regions.
4. Technology and Cyber Risks
B. Nationalization of Insurance Markets
Emerging economies may begin to favor local reinsurers A. Generative AI and Deepfakes
and insurers over foreign entities, leading to protection- The explosion of generative AI technologies (e.g.,

38 July 2025 The Insurance Times