Once a "secondary peril," severe convective storm (SCS) is now the single biggest driver of U.S. insured losses. Yet because these losses arrive as a high frequency of mid-sized events rather than one severe catastrophe, they are largely left net retained by catastrophe excess-of-loss (XoL) treaties—putting cedants' earnings, surplus and ratings under growing pressure.
This guide explains what SCS is, why losses are rising, and how parametric, modeled-loss reinsurance backstops the exposure a traditional tower leaves behind.
Key Severe Convective Storm (SCS) figures in 2025
- 1,250 SCS events in 2025
- $50 billion+ insured SCS losses in 2025: the third consecutive year above $50 billion
- 156% rise in SCS claims costs since 2020
What is a severe convective storm (SCS)?
A severe convective storm is a meteorological phenomenon that, for (re)insurance purposes, comprises three perils: hail, tornadoes and straight-line winds (also known as derechos). SCS form when warm surface air rises rapidly into the cooler upper atmosphere, carrying moisture upward; because warmer air holds more water vapor and the Earth's surface is warming, these storms are becoming more intense.
Source: Descartes Underwriting
Geographic Risk Trajectory
In the U.S., SCS are most frequent east of the Rockies—home to the well-known "Tornado Alley"—but their reach extends to the West Coast and north into Canada. They also occur regularly in Europe, Australia, China and the Middle East.
Why are severe convective storms intensifying?
SCS are intensifying because a warming atmosphere supplies more of the energy and temperature contrast that drives convection. Understanding the mechanism explains why Descartes expects the trend to continue rather than reverse.
How does an SCS form?
- Phase 1:
Sun-warmed surface air loses density and rises; an external lift—a weather front or terrain—triggers vertical motion.
- Phase 2:
Rising air carries moisture into the cooler upper atmosphere, where it condenses into towering cumulonimbus (thunderclouds) and releases latent heat, further fueling the updraft.
- Phase 3:
Strong updrafts suspend ice particles long enough to fuse into hailstones—recorded as large as 20 centimeters across—before gravity returns them to the ground.
- Phase 4:
Falling rain and hail cool the lower atmosphere, creating dense downdrafts and straight-line winds; wind shear can spin horizontal rotation into supercells and tornadoes.
How does a warming atmosphere increase SCS severity?
A warming atmosphere drives SCS severity for three main reasons:
Factor | Why it matters for severe convective storms (SCS) |
Average ground temperatures are rising | Warmer air near the surface can hold more moisture and heat. This provides more "fuel" for thunderstorms, making them stronger and more likely to produce intense rainfall, hail, and damaging winds. |
Upper-atmosphere temperatures are falling | Colder air higher in the atmosphere increases the temperature difference between the ground and upper levels. This instability causes warm air to rise more rapidly, creating stronger updrafts inside storms. |
More energy is present in the atmosphere overall | The combination of warmer surface air and increased moisture means storms have more energy available. This can lead to faster convection, stronger winds, and larger hailstones that remain suspended longer before falling. |
Regional impacts vary. Europe, particularly northern Italy, is experiencing an increase in very large hail events due to the combination of Alpine convection and Mediterranean moisture. In the United States, hail risk is shifting southward and eastward, with increases observed in areas such as western Texas and Colorado, although long-term frequency trends remain uncertain.
Why are SCS losses rising so fast?
SCS losses are rising because more assets are exposed to severe convective storms and the cost of repairing damage has increased significantly.
Two factors are driving the increase:
1- Escalating exposure:
- More homes and businesses have been built in areas exposed to hail, tornadoes, and severe wind.
- Aging buildings, especially older roofs, are more vulnerable to SCS damage.
- As a result, the same storm can now affect more insured assets than it did a decade ago.
Source: Descartes Underwriting
2- Repair-cost inflation:
- Construction materials have become more expensive.
- Labor and post-event repair costs have risen sharply.
- Every claim therefore costs more to settle than in previous years.
Why does severe convective storm risk create a reinsurance gap?
Most reinsurance programs are designed to protect against large single events, such as major hurricanes, rather than multiple mid-sized losses occurring throughout a year. Severe convective storms (SCS) frequently generate exactly this type of loss pattern.
Several structural features contribute to the gap:
- SCS is commonly subject to wind-hail deductibles, sub-limits, and cosmetic-damage exclusions, which can reduce recoveries under traditional coverage.
- A series of hail, tornado, or straight-line wind events can generate a significant aggregate annual loss.
- However, if no individual event exceeds the Catastrophe Excess of Loss (Cat XoL) attachment point, the reinsurance program may not respond.
- In that scenario, the cedant absorbs the losses net despite experiencing substantial annual SCS costs.
Source: descartes underwriting
What is the impact on insurers?
Because aggregate retentions remain relatively high, even in a softening reinsurance market:
- Primary insurers retain a large share of SCS losses
- Losses can be highly volatile from year to year
- Capital and surplus can be eroded
- Credit ratings may come under pressure
Parametric SCS reinsurance is designed specifically to address this protection gap by covering accumulated SCS losses that traditional Catastrophe Excess of Loss (Cat XoL) programs may not capture.
How does parametric SCS reinsurance work?
Parametric SCS reinsurance uses a modeled-loss index to provide protection against aggregate losses from hail, tornadoes, and straight-line wind. The coverage is designed to complement a cedant's existing reinsurance program and closely reflect its Ultimate Net Loss (UNL).
How is the modeled-loss index built?
Descartes first evaluates the cedant's:
- Risk appetite
- Geographic exposure
- Portfolio risk profile
A modeled-loss index is created to reflect the aggregate modeled event losses across all affected locations during the coverage period.
How are severe convective storm perils modeled?
Each peril is modeled independently using specialized hazard data:
Peril | How it is modeled |
Hail | Intensity modeled from NOAA radar data |
Tornado | Assessed against Enhanced Fujita (EF) Scale data from the National Weather Service |
Straight-line wind | Modeled using physics-based atmospheric variables |
How is the structure selected?
With support from their broker, the cedant selects the structure, attachment point, limit, and target spend that best fit their portfolio and capital objectives. The design is intended to work in tandem with existing Cat XoL programs, effectively backstopping the annual SCS and NatCat budget. Where appropriate, the structure can also be built using trusted third-party vendor models to reflect specific portfolio requirements.
How fast is a parametric SCS recovery paid?
Descartes continuously monitors the reinsured portfolio and updates the modeled-loss index throughout the season. When the index breaches athe trigger, the recovery process is activated immediately, without waiting for industry loss estimates or the processing of underlying claims.
Because administrative friction is largely removed, payments are typically made within a few weeks. These recoveries are designed to cover expected property damage losses, Incurred But Not Reported (IBNR) claims, and other incurred costs, helping cedants restore financial stability more quickly and reduce earnings volatility across the portfolio.
How does it fit alongside a Cat XoL tower?
Parametric SCS reinsurance sits as a complement rather than a replacement for traditional catastrophe reinsurance. While Cat XoL programs are structured to respond to large single events, parametric solutions are designed to capture the accumulation of mid-sized, high-frequency SCS losses that often fall below traditional attachment points.
Because the index is calibrated to the cedant’s own portfolio and underwriting terms, the structure can be positioned precisely where the Cat XoL program stops responding. This allows it to protect the aggregate SCS budget across the year without duplicating existing event-level coverage, making it a targeted tool for closing a well-defined protection gap.
Case Study: Parametric SCS reinsurance in action
Scenario: A Midwest-exposed U.S. cedant writes $500 million in annual premiums with a traditional Cat XoL treaty attaching at $50 million per event. During a single season, four consecutive hailstorms strike. Each storm inflicts $20 million to $35 million in property claims.
The Problem: Because no individual storm breaches the $50 million mark, the traditional tower triggers zero recovery. The cedant absorbs a cumulative $100+ million loss (nearly 25% of total premium) entirely net, severely damaging its P&L.
The Solution: By implementing a complementary Descartes Parametric Aggregate SCS cover with a cumulative $75 million trigger, the sequence of mid-sized events crosses the threshold. The client receives a fast payout within weeks, providing immediate liquidity to stabilize quarterly earnings.
Why Descartes for parametric SCS reinsurance?
“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.
SCS events are particularly costly for insurers, as these so-called “secondary perils” are not ceded comprehensively to reinsurers. Despite the softening market, cedants’ aggregate retentions have stayed high, even as exposure increases. Reinsurance is most commonly bought to protect severe events, not a high frequency of losses over a whole year. These challenges combined make SCS one of the biggest threats to the balance sheet and rating of U.S. insurers.
We launched Descartes Underwriting to help businesses and cedants better manage the increasing impacts of weather events. We do so by adopting a scientific approach to risk assessment and underwriting, and by embracing innovative coverage structures that better meet the challenges our corporate and insurance clients face in the changing global environment.
We employ the largest team of scientists in the insurance sector. Our underwriting is carried out in-house by peril-specific teams of senior underwriters, data scientists, climatologists, modelers and software engineers. They give Descartes a best-in-class understanding of the frequency and severity of natural perils. A large team of those specialists is dedicated to the study of SCS.
With limits of up to $100 million under parametric SCS (re)insurance policies, we have the largest capacity line in the market for this product. Our innovative approach allows for rapid payment of claims and comprehensive protection for any type of financial loss, including non-damage business interruption.
By rethinking how (re)insurance works and injecting science and state-of-the-art technology into the process of understanding risk, we are able to cover severe convective storms—and other major natural perils—effectively and efficiently. This document draws together elements of our understanding of the science behind SCS events and the complementary approach to reinsure against them.”
— Sébastien Piguet, Chief Insurance Officer, Descartes Underwriting
FAQ
What perils does parametric SCS reinsurance cover?
Parametric SCS reinsurance covers the three core components of a severe convective storm: hail, tornadoes and straight-line winds (derechos). Each is modeled independently using peril-specific hazard data and vulnerability functions tailored to the underlying asset class.
How quickly are recoveries paid?
Recoveries are typically paid within a few weeks once a layer is triggered. Because settlement is driven by a transparent modeled-loss index, there is no wait for industry loss figures and no need to notify or adjust underlying claims before recovery.
How closely does the modeled-loss index track our Ultimate Net Loss?
The index is calibrated to the cedant's policy-level exposures and underwriting terms—including wind-hail deductibles, roof schedules, cosmetic-damage treatment and asset-class features—so it closely aligns with the cedant's UNL. The methodology is fully transparent and can be monitored throughout the risk period.
Can it sit alongside the existing Cat XoL program?
Yes. It is designed to work in tandem with an existing Cat tower, responding to the net retained, high-frequency aggregate SCS losses that per-occurrence treaties are not built to capture. The structure is engineered to attach where the existing program leaves off.
Can Descartes use a third-party vendor model for the index?
Yes. Descartes can underwrite suitable indices from reliable vendor models where a cedant prefers that approach, as an alternative to our in-house index.
What limit is available?
Descartes’ parametric SCS (re)insurance solution can provide up to $100 million per contract, representing one of the largest capacity lines available in the market for this type of product.
