Schroders Capital’s ILS unit partners with ETH Zurich to enhance hurricane risk modelling

Schroders Capital’s insurance-linked securities (ILS) division has partnered with ETH Zurich, a public university in Zurich, Switzerland, to launch an industry-first independent research project that’s designed to enhance hurricane risk modelling for the ILS sector.

According to the announcement, this initiative, which is supported by the Swiss Innovation Agency, Innosuisse, will integrate state-of-the-art climate science into catastrophe risk assessment.

A significant challenge facing the ILS market regarding hurricane risk modeling is that these models remain predominantly based on historical observational data, rendering them static.

Ultimately, this static nature complicates the evaluation of how the current warmer climate is already affecting hurricane behaviour. Consequently, this also leads to uncertainty regarding the pricing and management of hurricane-related risks.

Schroders Capital’s ILS division will reportedly work with the Atmospheric Physics Group at ETH Zurich, under the leadership of Prof. Dr. Ulrike Lohmann throughout the project.

By bringing both group’s levels of expertise together, the project aims to enhance the currently restricted observational database, enable the mapping of hurricanes not yet seen, while also responding to the demand from investors for ILS investments that consider the impacts of climate change.

The first stage of the project will focus on the use of ICON, a high-resolution, convection-permitting numerical weather prediction model, to simulate synthetic hurricane seasons under a range of past and present climate regimes and different future climate scenarios.

Schroders Capital noted that this approach enables the generation of realistic hurricane tracks and intensities, which includes rare Category 4 and 5 storms, across both historical and future climates.

In later stages, simulated data obtained from the project will be used to train a machine learning-based hurricane hazard model, which will help to further improve the reliability and flexibility of risk assessments.

As well as this, key insights from the research conducted by both organisations will be integrated into Schroders Capital’s proprietary ILS Operational Platform, which will help to support more robust and climate-aware analytics for risk selection, pricing, and portfolio construction.

Flavio Matter, Head of ILS, PDCA, Schroders Capital, commented: “The collaboration with ETH Zurich enables us to build a more transparent and forward-looking understanding of hurricane risk. By grounding our models in physical climate processes, we can anticipate extreme events better and offer investors a more resilient framework for a market that is increasingly shaped by climate volatility.”

Prof. Dr. Ulrike Lohmann, Atmospheric Physics Group, ETH Zurich, said: “We’re proud to be developing this new modelling capability in collaboration with Schroders Capital. This initiative represents a significant step forward in understanding the risks linked to tropical cyclones under climate change, a challenge that is only growing in urgency and importance.”