Climate change & climate risk related news

As vendor catastrophe models and elevated annual losses show that secondary perils have grown in prevalence for the re/insurance and insurance-linked securities (ILS) markets, climate risk needs to be explicitly baked in, according to Kelly Hereid, Director, Catastrophe Research & Development, Liberty Mutual Insurance.

AbsoluteClimo, a climate and weather modeling, forecasting and risk management firm based in Hawaii, has announced upgrades to its core service of climate catastrophe risk models and climate financial modelling tools.

In light of its uncertain but apparent influence on both the frequency and severity of natural catastrophe events, it’s no surprise that climate change is at the forefront of the minds of catastrophe risk underwriters, investors and of course model vendors, but it’s important to remember that this is not the only uncertainty.

Kettle Re is launching as a reinsurance provider utilising deep-learning and artificial intelligence to create proprietary risk models and analytics that can help it more accurately and sustainably price climate-linked exposures, starting with wildfires.

The New Zealand Superannuation Fund (NZ Super Fund) has rejected any investments into wildfire insurance and reinsurance within its insurance-linked securities (ILS) allocations, saying that because of climate change it feels the risk is mispriced.

The insurance marketplace is not that far off a $300 billion loss year and it’s vital reinsurance and ILS markets price adequately for climate change risk, according to David Flandro, Managing Director of Analytics at Hyperion X.

Despite the fact insurance and reinsurance markets become increasingly sophisticated in their use of technology to reach customers and provide enhanced coverage, in North America, perhaps the most advanced economy in insured terms, the natural catastrophe protection gap actually widened by over 7% in 2019.

Climate change, variability and the expected increases in Atlantic hurricane risk that these factors will drive, is still likely to be compensated for in catastrophe bond and private insurance-linked securities (ILS) coupons, as pricing should rise and consequently returns, in line with the risk, according to ILS manager Twelve Capital.

It’s hard to ignore that in recent years the insurance and reinsurance market has been beset by losses from so-called secondary perils such as wildfires and floods, which makes the understanding and pricing of these risks absolutely crucial to companies long-term profitability, analysts at J.P. Morgan have said.

The Climate Measurement Standards Initiative (CMSI), an Australian led collaboration on the physical risks of climate change and their disclosure, has developed a set of open-source, voluntary guidelines to help banks, financial institutions and insurers better assess the risk and quantify the costs of climate-related damage.