Responsive parametric solutions can help on aggregate SCS exposure: Descartes

Given that both the intensity and frequency of severe convective storm (SCS) events continue to steadily rise, Descartes Underwriting has indicated that the use of highly-responsive parametric solutions can help address aggregated SCS exposure.

In a new research report, Descartes Underwriting, the parametric risk transfer specialist, highlighted that it sees no sign of reversal or stabilisation in these escalating trends, with the company noting that it expects SCS events to become more apparent over time.

“SCS events are intensifying in large parts of the world, in part because their strength is made worse by the warming of the lower layers of the atmosphere. In combination with the rising value of exposed and insured property, this makes SCS losses a significant concern for insurers, and an important consideration in reinsurance purchasing, since multiple storm events may occur, each significant, but none large enough to attach to the lower layers of conventional reinsurance programmes,” Descartes explained.

As noted, severe convective storms events are increasing across the globe, with the United States experiencing the highest frequency of extreme events.

Reinsurance broker Gallagher Re recently reported that year-to-date industry losses from US SCS events in 2026 have climbed above $35 billion, marking at least the fourth consecutive year in which industry losses from US SCS events has crossed the $35 billion threshold on a nominal basis.

“Severe convective storms (SCS) are an increasingly problematic risk for U.S. cedants. Industry losses have exceeded $50 billion each year for the past three years. Exposure has increased dramatically as a result of extensive building development in rural areas prone to SCS. Meanwhile at the hazard level, the intensity of SCS events is shifting in some regions, and the past is not an accurate reflection of future events and severity patterns. Finally, aging housing stock makes roofs more vulnerable, and inflation of repair-costs has driven up claim figures,” Descartes Chief Insurance Officer and Co-Founder Sébastien Piguet said.

Importantly, Descartes outlines that in large parts of the world, SCS events are getting worse, which is true in part given that the overall intensity of severe convective storms is made worse by the warming of the atmosphere.

The firm notes that the 11 years prior to 2025 have been the warmest years seen on record, and each of the past three years has been on average more than 1.5°C warmer than during the pre-industrial era.

Moreover, Descartes states that the warming atmosphere encourages severity for three main reasons: average ground temperatures are rising; upper atmosphere temperatures are falling; and more energy is present in the atmosphere.

“This rising low-level moisture in a warmer atmosphere is the primary driver of increasing convective instability, which strengthens updrafts -which are rising air currents- within storms. Stronger updrafts can suspend hailstones longer against gravity, giving them more time to grow through accretion before falling,” Descartes added.

In addition, Descartes stressed that unlike major hurricanes, SCS events are rarely comprehensively ceded to reinsurers, especially under aggregate covers.

While the overall reinsurance market may be softening, Descartes notes that cedants have kept their aggregate retentions elevated, which has resulted primary insurers being left to bear a significant and volatile portion of losses on their own balance sheets, which can adversely affect their surplus and jeopardise their credit ratings.

“Traditional indemnity-focused insurance companies have responded to the onslaught of SCS loss by increasing deductibles for the peril, adding sub-limits, and ultimately introducing “cosmetic damage” exclusions. These coverage-limiting clauses specify that policies will respond only when the damage incurred by hail, for example, is structural,” the report reads.

Given this, Descartes emphasised how parametric reinsurance solutions can help provide a robust, and effective risk transfer solution to mitigate the sharp rise in SCS losses.

“One growing trend is SCS parametric reinsurance. Descartes’ highly responsive SCS product for insurers is intended to be complementary to traditional towers. We collaborate closely with brokers to help cedants protect what’s normally left uncovered by XoL Cat reinsurance, therefore providing a backstop on net retained SCS losses over the year,” Descartes explained.

Descartes highlighted that its parametric SCS reinsurance covers losses arising from localised hail, tornado, and straight-line wind associated with SCS events.

“When deployed on a modeled-loss basis, SCS reinsurance from Descartes dovetails neatly with an insurer’s existing outward reinsurance program. Each cedant’s risk appetite, geographic exposure, and portfolio risk profile is closely assessed. Descartes creates an index based on the aggregate modeled event loss for all locations impacted during the risk period. Hail, tornado, and straight-line wind are modeled independently using the latest hazard data and modeling tools for each,” the firm stated.

Hail intensity is modeled based on NOAA radar data, tornadoes are assessed against Enhanced Fujita Scale data from the National Weather Service, and Straight Line Wind uses physics-based atmospheric variables.

Descartes Chief Scientific Officer and Co-Founder Kevin Dedieu, commented: “While direct attribution of observed historical trends to climate change specifically remains complicated, consensus has strengthened considerably in recent years around the underlying physical mechanisms and the size-shift signal. The frequency of favorable large-hail environments has increased, with the traditional “Hail Alley” (Texas, Colorado) expanding into the central and eastern U.S.”

Descartes Chief Insurance Officer and Co-Founder Sébastien Piguet, added: “SCS events have been particularly costly for insurers because often they are not comprehensively ceded to reinsurers, especially under aggregate covers. Aggregate retentions have remained high, leaving primary insurers to shoulder a massive and volatile portion of the loss on their own balance sheets. Highly responsive parametric products for SCS are a complementary solution.”