Author Topic: Climate Change and Cat Losses  (Read 3272 times)

rb

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Re: Climate Change and Cat Losses
« Reply #10 on: March 19, 2018, 06:40:47 PM »
I don't think increases in CAT frequency or severity will impact insurance companies that much. Policies have a finite life. As the cat losses change so will premiums. So the underwriters will likely be ok. The insureds? Who knows?


FairFacts

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Re: Climate Change and Cat Losses
« Reply #11 on: March 21, 2018, 05:35:25 AM »
I found the following report that goes into some detail about one re-insurers (Swiss RE) approach to climate change risk. Its worth a read for anyone interested...

http://reports.swissre.com/2016/financial-report/responsibility/natural-catastrophes-and-climate-change.html#

also, for anyone doubting climate change, this is NASA's position, the graph on CO2 levels is scary....

https://climate.nasa.gov/evidence/


Cardboard

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Re: Climate Change and Cat Losses
« Reply #12 on: March 21, 2018, 05:51:47 AM »
Like I tried to explain, so far zero correlation. That is not to say that it will not change.

However, if you are convinced that global warming will lead to more/larger disasters in the not so distant future (if not this discussion is useless in terms of investing if happening only a few decades from now): hurricanes, sand storms, drought, etc. then you should stay away from insurers and reinsurers because these guys are always reactive and then adjust their policies accordingly based on recent past experience.

Even Buffett who has been scared to death about nuclear weapons since the 50's or 60's did not think it was necessary or missed to include an exclusion in his policies on nuclear terrorism until after 9-11. Should tell you a lot.

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Cigarbutt

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Re: Climate Change and Cat Losses
« Reply #13 on: March 21, 2018, 07:06:18 AM »
I would say that there has been a strong tendency to make an association between costs related to "weather" events and "climate" change. Association is not automatically cause and effect. But it sells well.

Probably a long term issue but worth keeping an eye on.

Some interesting "facts":

-Studies have built a relatively convincing case that wind storm activity has increased in the North American Basin since the 1970's BUT this has not been replicated in other areas in the world and results may still be within statistical noise.

-Storm activity as measured in many studies has increased in the last 20 or 30 years but these levels are comparable to what happened about 100 years ago.

-Studies clearly show an increasing trend in storm activity of lower intensity and this is "associated" with the notion of higher water temperatures but this trend can be essentially explained by improved measurement equipment and technology.

However, this needs to be watched because, if there is a trend, the trend may not be linear and factors may compound.

Example:

With the Superstorm Sandy, it has been estimated that a significant part of the insured losses were related to higher sea levels. The trend in sea level change is significant and it is hard to see how this trend will change. This is a long term trend and it is not essential for your investment decison to establish if this is related to climate warming or not. Sea level rising levels is just a fact. If you think of what is happening in the Netherlands for instance, you may see that a rising sea level will not have a linear effect in terms of the consequences as the measures taken to control floods may spectacularly fail at some point. It may be possible at this point to model how a 1mm level of sea level rise could result in a certain amount of insured damages to exposed areas such as New York or Florida. Potential black swans.

FWIW, I think that this "factor" (climate change) should not be a major variable in your decision. The underwriting cycle is much more of an issue. Historically, after earthquakes, people have kept coming back progressively closer to the volcano as the quality of the arable lands (lava) was inversely proportional to the center of the eruption center. People (like insurers) tend to forget how things can get nasty after quiet periods. It is just human nature.

As always, it is likely a good idea to look at insurers and reinsurers that keep a reasonable cap on losses (think Allied World), that have a diversified book of business and that have the capital buffers in place to deal with "surprises".