Aeolus Capital Management on the importance of climate models: Interview

For our latest Artemis Live video interview we explored the importance of climate risk models in the management of portfolios of reinsurance and insurance-linked securities (ILS), with senior executives from Aeolus Capital Management.

Aeolus Capital Management Ltd. is a specialist reinsurance and retrocession investment fund manager that targets largely property catastrophe exposures in its underwriting.

As a result, climate risk and climate change are key considerations for the company, and, as we all know, these are currently topics of intense discussion among the insurance-linked securities (ILS) investor community.

So, I was joined by Aeolus’ Head of Research, Dr. Pete Dailey, and Partner, and Chief Analytics Officer Frank Fischer, who discussed the importance of climate models in their work and how these tools are improving.

We also explored how Aeolus is leveraging climate modelling, data, and analytics, to inform its portfolio construction and management, asking Dailey and Fischer how they see the use of climate inputs to ILS decision-making evolving over time.

Taking into account climate change related factors in how reinsurance-related risks are modelled, assessed and selected for portfolios, is deeply integrated into the processes followed by Aeolus.

It’s also critical to explain how climate is factored into decision-making, when it comes to having conversations with ILS investors, Dailey and Fischer explained.

Dr. Dailey explained the importance of climate models in Aeolus’ research, saying, “It’s becoming more and more critical every day. A day does not go by when I don’t see an article, or have some exchange with a colleague, on the topic of climate change.

“The insurance and reinsurance industry are really on the leading-edge of understanding climate change risk. It’s nothing new to us, climate analytics has been a fundamental part of risk management for the twenty-plus years that I’ve been in the industry.

“It’s becoming an additional layer on top of what we already understand and what we’re trying to optimise, as a part of a holistic approach to risk management.

“We consider the past and the future, but most importantly we consider the present and how the current climate regime may affect the risk in the coming year and years.”

Fischer explained the importance of integrating climate insights into Aeolus’ portfolio selection and management, as well as in the conversations the company has with investors.

“Climate change is front and centre with our investors. There’s no conversation we have when the topic doesn’t come up,” Fischer said.

Expanding that, “We have to spend a lot of time informing our investors about this and giving them the data and research to properly evaluate the asset class.

“Our job is to give them all that information and try to get, as much as we can, a real perspective of the risk so they can make good decisions.

“In the end, our job is to inform our investors. They’re ultimately our partners and our research and investment in the models is going to be a key component of their decision-making process.

“In any industry, ours no different, we’ve got to constantly challenge our assumptions and try to improve the product. So obviously the impact of climate is front and centre and a key area of research.”

The full video interview is embedded below and can also be viewed in full, along with previous Artemis Live video interviews, over on our YouTube channel.

You can also listen in audio to our interviews by subscribing to the Artemis Live podcast here.

All of our Artemis Live video interviews have a focus on reinsurance, ILS and the efficiency of risk transfer and can be accessed directly from our YouTube Channel.

You can also listen in audio to these interviews by subscribing to the Artemis Live podcast here.

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