(nat cat) risk management

Dr. David N. BreschSwiss Re23 June [email protected]

Climate Change

Quantification of business impacts by means of catastrophe modeling leading to tailormade risk transfer solutions

Or: Nat Cat Reinsurance – how it works and what it needs


(Nat Cat) Risk Management Identification/Awareness

– perception is based on a shared mental model that can be conceptualized

Quantification

– From conceptual to quantitative model

Mitigation

– Explore/quantify options through quantification

Transfer

– costing of options: need for integrated models: loss costs (expected loss), cost of capital (or ‘for capacity’)

– portfolio management diversification

Market: price the option and trade etc.

conc

eptu

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appl

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generic

specific


Reality and Model

Reality

To be more precise: Perceived reality


Reality and Model

Reality

Model


Reality and Model: Proportions

Society

Environment

Legal Framework

addi

tion

al p

erils

Economy

Reality

Model


Reality and Model: What can be described

Reality Model: Abstraction

Described in Model

Model Reality : Interpretation (Verification/Falsification/Calibration)

Not modeledModeled

Unrealistic?

Reality

Model


Reality and Model: Development

Not modeledModeled

Unrealistic? incrementalconceptional


Described in Model

Model Reality : Interpretation

Reality

Model


Reality and Model: Development

Not modeledModeled

Unrealistic? incrementalconceptional


Described in Model

Model Reality : Interpretation

Reality

Model

Be reminded: Perceived reality


Nat Cat loss model4 elements

Hazard Vulnerability Value distribution Cover conditions

- Sums insured

- Cover limits

- Deductibles

- Exclusions

- etc.

How strong?How frequent?

How well built and protected?

What exactly is covered ... where... and how?


Example: Detailed Single Event SimulationLiterally hundred thousands of such simulations are run in e.g. the catXos Nat Cat model to assess a portfolio


TC North Atlantic – probabilistic (zoom)

historic~1000 events~100 years

probabilistic~100‘000 events~10‘000 years

North Atlantic tropical cyclone event set


The largest loss potentials

Peak risks: Earthquake or

storm In industrialised

countries With high

insurancedensity

Katrina2005

Northridge

1994

1945

8.4

Mireille1991

7.2

Daria1990

Storm Europe

35

Typhoon

Japan 20

Hurricane US+Carib. (100y)

110

FHCF2007

QuakeJapan

75

JER

50

Quake California

Nat cat events (indexed to 2006, source: sigma 2007)Loss potentials from events with a return period of 200 years (100 years for Hurricane North Atlantic)

Insurance loss potentials in USD billions:

FHCF: Florida Hurricane Catastrophe Fund state-run JER: Japan Earthquake Reinsurance Scheme schemes


How will climate change impact the re/insurance industry?

Possible change in mean AND variance


The next 100 years:Increasing variability

Model results

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mm

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heatw

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What has been exceptional in 2003 might become usual by 2070 Source: Schär et al., Nature

2004


The effects of climate change: Storm damage in Europe on the rise

Climate change is affecting winter storms in Europe. Based on the findings of a scientific study, Swiss Re forecasts a significant rise in damage from storm events in the long term, creating additional risk for society and insurers to manage

CORNELIA SCHWIERZ1, PAMELA HECK2, EVELYN ZENKLUSEN1, DAVID N. BRESCH2, CHRISTOPH SCHÄR1, PIER-LUIGI VIDALE1 and MARTIN WILD1

1) Institute for Atmospheric and Climate Science, ETH Zürich, Schweiz2) Swiss Reinsurance Company, Zürich, Schweiz


IPCC Scenarios

Source: IPCC 2007, Summary for Policy Makers

Curr

en

t, C

on

trol

Futu

re,

A2


European Winter StormsGoal and Methodology

Compare wind storm losses on a Europe-wide property insurance portfolio in current and future climate conditions: Use 3-dimensional global climate models (Int. community, ETH)

Drive regional climate models over Europe with initial and boundary conditions from global models (ETH)

Couple windfields (climate model output) with Swiss Re’s state-of-the-art loss model (probabilistic storm hazard set for current and future climate conditions)


European Winter StormsClimate Change Impact

Increase in annual expected loss for the period 2071–2100 compared to a 1961–1990 reference period:

Climate models show an increase in both storm severity and frequency.

Swiss Reloss model

Climatemodel 1

68%

Climatemodel 2

48%

Climatemodel 3

16%

Source: Schwierz et al, Modelling European winter windstorm losses in current and future climate, submitted to climatic change


Climate Impact StudiesOn-going Joint Projects Winterstorm Europe

– MeteoSwiss, Zürich (NCCR climate), see P. Della Marta

Tropical Cyclones North Atlantic

– University of Bern, (NCCR climate)

Flood Europe

– EC Joint Research Center, Ispra, Italy

Drought and Subsidence Europe

– ETH, Zürich (NCCR climate)

Sea Level Rise, Coastal Risks

– University of Bern, GKSS Hamburg Tropical Cyclones West Pacific

– City University of Hong Kong (more general study, done)


Conclusions

Past and Present Climate

– solid base period longer re-analysis period, better representation of extremes (‘tail events’)

– comprehensive probabilistic set (multimodel) ensemble based re-analysis

– variables to best represent the cause of loss gust better than mean wind, flood water level better than run-off ( e.g. coupled hydrological and hydraulic models)

– reasonable resolution to capture local risk and consistent spatial signals footprint (dependency)

Future climate

– Avoid surprises, abrupt change (prevention, mitigation, adaptation)

– Near future (decade) of more immediate concern (from time-slice to continuum)

Ceterum censeo: Easy data access (at adequate costs, simple legal terms)


Further reading

www.swissre.com

Research & Publications Swiss Re publishing

[email protected]

(nat cat) risk management

Documents