to the more than 1,000 natural disaster events that occurred in LAC between 1990 and 2020 are estimated at US$ 170 billion in today's currency.<sup>5</sup> Only 5 percent of those events were insured, with Mexico and Chile reporting a higher proportion of insured events but still minor, at 12 percent.

Earthquakes have been the most economically damaging disasters estimated at US$ 57 billion, with 104 events recorded. Chile, Mexico, El Salvador, and Ecuador were the most economically affected countries.<sup>6</sup> Storms follow as the most economically costly events in our country sample, driven primarily by Mexico (Figure 2). In terms of specific events, the top five most damaging disasters have been the 2010 earthquake (and subsequent tsunami) in Chile, the 2017 earthquake and the 2005 and 2013 storms in Mexico, and the 2014 drought in Brazil (Table 1). These events combined affected more than 30 million people with estimated damages of around US$ 55 billion.<sup>7</sup> Table 1 in the Annex shows the top two most damaging natural disasters for each country in the sample. In terms of frequency, floods, particularly riverine floods, are the most common. The region has recorded more than 550 flood events between 1990 and 2020, with Brazil, Colombia, and Mexico registering the higher occurrence.

Temperatures in LAC countries are expected to increase in the coming decades, with negative consequences for economic activity and, ultimately, for the financial sector. The warming is likely to be more pronounced in the central and north region of South America. In much of the Amazon the annual mean temperature is projected to increase by 1.7 ̊C to 5.3 ̊C, and the duration of heatwaves is projected to increase by 18 to 214 days by 2085.<sup>8</sup> Along the Atlantic coast of Brazil, Uruguay, and Argentina, the temperature increase is expected to be less marked. For the LAC region as a whole, the most pronounced temperature increases are projected to occur in September and October, where the median estimates for the whole region could increase by 4.2 ̊C (Figure 3). Warmer temperatures have negative consequences for economic activity. The IMF estimates that a one-degree increase in temperature in emerging market economies lowers growth in the same year by 0.9 percentage point, where the contractionary effects are statistically significant even seven years after a weather shock (IMF 2017).

LAC’s dry regions will get drier and wet regions will get wetter. According to the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5), the Caribbean, Central America, and central Brazil are the areas where precipitation is expected to decrease the most, in the range of 20 to 40 percent (Figure 4).<sup>9</sup> On the flip side, extreme precipitation events’ frequency and intensity are expected to increase, particularly for the tropical and subtropical Pacific coastline and southern Brazil. Water scarcity and increased mean temperatures are projected to decrease water supplies and affect most ecosystems and agroecosystems. On the other hand, an intensified rainfall could significantly increase landslide risks, particularly in sloping terrain, which is often occupied by vulnerable populations.

> 5 EM-DAT estimates damage as the value of all damages and economic losses directly or indirectly related to the disaster.

> 6 Economic damages estimates are sourced from EM-DAT and expressed in today's currency. 7 Ibid footnote 6.

> 8 <u>https://climateknowledgeportal.worldbank.org/country/brazil/climate-data-projections</u>

> 9 <u>https://climateknowledgeportal.worldbank.org/region/latin-america-caribbean/climate-data-historical</u>

6