Author Topic: Climate Change and Cat Losses  (Read 2916 times)

FairFacts

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Climate Change and Cat Losses
« on: March 19, 2018, 09:06:57 AM »
I have a nagging concern in the back of my mind that climate change will perpetuate the weather related cat. losses. What impact will this have on longer-term underwriting? Will it hasten hard insurance markets?


johnpane

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Re: Climate Change and Cat Losses
« Reply #1 on: March 19, 2018, 09:25:08 AM »
Interesting you should mention this. I have noticed an increasing trend of my neighbors reporting they have lost their cats (and dogs), but it has not seemed to be related bad or good weather.

Cigarbutt

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Re: Climate Change and Cat Losses
« Reply #2 on: March 19, 2018, 10:16:47 AM »
Climate change is a tough topic but Ill give you my present thinking concerning the potential impact on catastrophe insurers and reinsurers. I have references if you need them.

The long term trends in costs (inflation-adjusted) are going up but there are many variables. The obvious ones are: increasing population density and urbanization, population migration and concentration in coastal areas and generally increasing economic activity. At this point, the consensus is that climate change might be an independent contributor to the trend (more frequent and more severe events). 2017 events might trigger this line of thinking but one has to be careful about recency bias.

But the climate change effect (whatever it is) will likely manifest over decades. Catastrophe modelling is historical in nature and will tend to naturally   incorporate more recent trends. For the insurance industry with cat exposure, IMO this is worth watching but more as a long term threat, especially if the trend becomes clear and accelerates.

So, to answer your question, climate change related events are unlikely to trigger a hard market soon. Natural variability in catastrophe activity and human volatility in financial markets could however. Still looking for a model to explain the latter.

walkie518

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Re: Climate Change and Cat Losses
« Reply #3 on: March 19, 2018, 10:34:23 AM »
From what I gather, over the last couple decades, underwriting has taken into account the increasingly intensity and frequency of cat events.  While the last decade has certainly been bad, it's been getting worse for a while. 

What one might want to consider, however, is if flood is privatized in the US. 

Insurers want the business but the impact on the housing market could be substantive, especially in poorer areas with flood risk.


sleepydragon

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Re: Climate Change and Cat Losses
« Reply #4 on: March 19, 2018, 10:35:22 AM »
One way to hedge against global warming is to make sure your house is located in high elevation neighborhoods. When the once per 100/50-year flood comes and destroy all those houses in low places, your house will worth more. This is what happened in Texas I think.

sleepydragon

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Re: Climate Change and Cat Losses
« Reply #5 on: March 19, 2018, 10:37:18 AM »
From what I gather, over the last couple decades, underwriting has taken into account the increasingly intensity and frequency of cat events.  While the last decade has certainly been bad, it's been getting worse for a while. 

What one might want to consider, however, is if flood is privatized in the US. 

Insurers want the business but the impact on the housing market could be substantive, especially in poorer areas with flood risk.

You cant diversify the flood risk and only people in flood zones will buy. So no private company want to sell insurance without govt help

Cardboard

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Re: Climate Change and Cat Losses
« Reply #6 on: March 19, 2018, 10:38:16 AM »
2006-2016: no major hurricane hit the U.S. The only noticeable one is Sandy which was a large storm. So we must have some people who did not pay attention regarding frequency.

This is highly contrary to what was thought to happen following devasting hurricanes in 2004 and 2005. This is an incredibly long period of time without such event while we have been told that some of the highest temperatures were recorded in some of these years.

If you want to consider a period of 11 consecutive years to be an outlier, no point in continuing this discussion. However, I would be very careful to simply use 2017 and project forward.

Cardboard 

RichardGibbons

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Re: Climate Change and Cat Losses
« Reply #7 on: March 19, 2018, 11:54:25 AM »
2006-2016: no major hurricane hit the U.S. The only noticeable one is Sandy which was a large storm. So we must have some people who did not pay attention regarding frequency.

This is highly contrary to what was thought to happen following devasting hurricanes in 2004 and 2005. This is an incredibly long period of time without such event while we have been told that some of the highest temperatures were recorded in some of these years.

If you want to consider a period of 11 consecutive years to be an outlier, no point in continuing this discussion. However, I would be very careful to simply use 2017 and project forward.

Yeah, I think this is a great example of the unpredictability of the effects of climate change.  I mean, someone who's ignorant about meteorology might believe that high temperatures are the only factor that impacts the strength of hurricanes, when other factors like wind shear are just as important.  Similarly, changes in wind patterns and changing ocean currents can dramatically affect where hurricanes will appear.

So, I think you're right, Cardboard. Climate change results in unpredictable changes around the world--hurricanes, flooding, and droughts. Since it's hard to do prediction accurately, there's value in reducing CO2 emissions to slow the rate of change to reduce the massive negative impacts of climate change and allow the models to catch up to the impacts of climate change on our world.

maybe4less

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Re: Climate Change and Cat Losses
« Reply #8 on: March 19, 2018, 12:47:11 PM »
2006-2016: no major hurricane hit the U.S. The only noticeable one is Sandy which was a large storm. So we must have some people who did not pay attention regarding frequency.

This is highly contrary to what was thought to happen following devasting hurricanes in 2004 and 2005. This is an incredibly long period of time without such event while we have been told that some of the highest temperatures were recorded in some of these years.

If you want to consider a period of 11 consecutive years to be an outlier, no point in continuing this discussion. However, I would be very careful to simply use 2017 and project forward.

Cardboard

Why are you discounting Ike in 2008?

Also, a little disingenuous to exclude Sandy. It hit the US mainland with hurricane force winds and is apparently the fourth costliest storm on record.

Cardboard

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Re: Climate Change and Cat Losses
« Reply #9 on: March 19, 2018, 01:05:16 PM »
My bad, forgot about Ike.

However, it has still been a much more quiet period than what was predicted by the non-ignorant people or scientists.

I can tell you that it was pretty scary to invest in Fairfax in 2006. A somewhat repeat of the 2005 hurricane season and many of the people who made a lot of money with these options would not have fared so well. Count myself included.

More storms due to global warming (which is really the proper way to call it since we are talking about greenhouse effect) was really on the back of people's mind investing/trading in Fairfax at the time.

Now, will this change and will we see category 4 and 5 hurricanes now every year going forward? Could be.

Cardboard