Introduction

The Swiss Re Institute and the London School of Economics (LSE) identify that the conditions for a new generation of systemic crises are emerging. Rising economic imbalances, including unsustainable fiscal debt trajectories, lower productivity growth, and demographic ageing, have increased vulnerabilities across the global economy. Stronger interdependencies between financial, digital, natural, and socio-economic systems are creating new channels for shocks to transmit and amplify. Geoeconomic fragmentation is further exposing vulnerabilities in global networks, as critical “chokepoints” in finance, technology, and trade are increasingly used for strategic leverage. Currently, financial markets may be underestimating the potential for non-linear disruption, as risk asset valuations remain close to record levels.

A widening gap between financial market pricing and rising systemic vulnerabilities

There is a stark contrast between rising systemic risk potential and financial market pricing. Equities, corporate credit, currencies, and real estate currently offer low risk compensation relative to their own history. This is particularly evident in the United States, where the S&P 500 equity price-earnings ratio is approaching all-time highs on an index level. Interest rates have shifted structurally higher since COVID-19, driven by inflation risk, (geo)political uncertainty, and fiscal concerns. In 2026, a sharp rise in energy costs has added further upside pressure. Crucially, the erosion of stock-bond diversification increases the risk of correlated market losses. Since COVID-19, the stock-bond correlation has shifted from negative to positive, leaving insurers and pension funds more exposed to simultaneous losses during market corrections.

Companies identify a more interconnected risk landscape

Analysis of corporate risk disclosures from 91 Fortune-100 companies reveals that risk perceptions are becoming more pervasive. Since 2019, the disclosure of artificial intelligence (AI) and new technology risk has risen by 30%, evolving from a concern largely confined to the tech sector into an economy-wide risk amplifier. Climate change risk disclosures have increased by 31%, reflecting more frequent extreme weather events and mounting regulatory pressure. Strains in the socio-economic fabric, including political polarisation, labour disputes, and social instability, have seen a 22% increase in disclosures. Companies are identifying a denser network of dependencies, with the average number of risk interconnections rising by 24% since 2019. Supply chains and AI have emerged as critical, highly connected nodes.

From shocks to systemic stress: four key domains that could frame the next crisis

Systemic threats to the financial system increasingly originate outside the traditional financial sphere. Shocks now propagate through complex networks across the financial system, the digital ecosystem, natural hazards, and the wider socio-economic environment. While interconnection can sometimes help absorb and disperse shocks through global risk pooling, dense and highly concentrated networks can generate disproportionate effects from relatively small triggers when transmission channels reinforce each other. Policy-driven catalysts, such as financial weaponisation and military conflict, are increasingly relevant in this fragmented landscape.

Financial system risks: new fragilities from evolving financial system connections

The architecture of the financial system has shifted, with systemic banking crises in advanced economies historically leading to cumulative output losses of more than 30% of GDP. Geoeconomic fragmentation increases the risk of financial weaponisation, particularly as cross-border payments are forecast to reach USD 320 trillion by 2032. The “shadow banking” sector, or non-bank financial intermediaries (NBFIs), now accounts for more than 50% of global financial assets and grew at roughly double the pace of banks in 2023 and 2024. Borrowing by US hedge funds exceeded USD 7 trillion for the first time in 2025. These entities are often lightly regulated, creating hidden systemic threats as risks shift away from regulated banks and insurers.

Digital risks: AI’s productivity opportunity comes with interconnected risks that can amplify systemic stress

Digital infrastructure is highly concentrated; in 2024, three firms controlled 70% of global cloud infrastructure, and three companies processed 97% of global credit card transactions. Such concentration creates potential single points of failure. AI compounds these fragilities by increasing system complexity via feedback loops and potentially weakening behavioural diversity. However, AI also offers substantial productivity gains, estimated to lift growth by more than 0.35 percentage points per year across G7 countries over the next decade. This growth could help make debt dynamics more sustainable, partially offsetting the headwinds from an ageing population.

Natural hazards: disruption of critical infrastructure is another source of systemic risk

Global insured natural catastrophe losses are rising by 5–7% annually, with exposure growth accounting for more than 80% of weather-related insured loss growth globally. Systemic risk emerges when these hazards hit concentrated, hard-to-substitute nodes such as AI data centres and power systems. For example, over a quarter of US data centres are located in areas experiencing at least three large-hail days annually, and 88% of Taiwan’s semiconductor plants are in regions of extreme seismic risk. Disruptions to these hubs can rapidly spread across dependent sectors, as demonstrated by the large-scale power outage in Spain and Portugal in 2025.

Socio-economic risks: long-running socio-economic trends are eroding economies’ capacity to absorb shocks

Long-running trends such as demographic ageing, weak trend growth, and unsustainable public debt are eroding the capacity of economies to absorb shocks. The old-age dependency ratio in OECD economies is projected to rise from 31% to 52% by 2060, which could add an estimated 80 percentage points to public debt without policy reform. In the United States, public trust in government has fallen below 20%. Wealth inequality and a lack of housing affordability further strain the socio-economic fabric, potentially impeding necessary policy responses during periods of systemic stress.

Policy limitations and the call to action

Traditional public policy buffers are increasingly constrained and less effective against interconnected risks. Five priorities are identified for policymakers and businesses: active and collaborative monitoring of the risk landscape to identify spillover risks before they materialise; identifying strategic dependencies to avoid excessive concentration around critical nodes; re-thinking public finances to build fiscal buffers during “good times”; expanding risk-transfer capacity through public-private partnerships and insurance-linked securities (ILS); and adapting regulatory oversight to ensure it is effective and addresses the NBFI landscape without stifling innovation.