IPCC 5th Assessment Report: Ramifications for the Insurance Industry

RAA Orlando Florida Orlando, February 11th, 2014

What Does This Mean For Managers of Risk?

Increased uncertainty Need for new capabilities Opportunities

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Increased Uncertainty
How are the distributions describing extreme weather shifting?

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Reliance on Historical Data

Is historical data applicable today?

Long Term Frequency/100 Years by Category and Model

RMS 2013[1] IF v8 100.0 75.0 50.0 25.0 RMS 2013[1] AIR v14 EQE v3.16 v3 16 IF v8 Historical[2] AIR v14 Historical[2] EQE v3.16 v3 16

Near Term Frequency/100 Years by Category and Model

RMS 2013[1] [ ] IF v8 100.0 Frequency/ 100 Years 75.0 50.0 25.0 RMS 2013[1] AIR v14 EQE v3.16 IF v8 Historical[2] AIR v14 Historical[2] EQE v3.16

Frequency/ 100 Years

1 65.8 71.9 69 9 69.9 77.0 67.6

2 32.8 44.0 35 5 35.5 49.1 39.6

3 33.1 39.0 45 8 45.8 42.3 47.7

4 21.5 15.8 22 8 22.8 16.7 12.6

5 4.0 2.2 21 2.1 2.4 2.7

1 60.4 78.0 83 7 83.7 85.3 67.6

2 31.1 48.2 46 8 46.8 55.1 39.6

3 38.7 43.5 60 8 60.8 47.4 47.7

4 25.5 18.2 29 9 29.9 19.1 12.6

5 4.9 2.7 37 3.7 2.9 2.7

Historical record is obtained from NOAA Technical Memorandum NWS NHC-6 with events from 1900 to 2013.

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Lack of Historical Data

Considering a 200-mi radius around the city of Boston, MA and a historical record from 1851 to 2013: There are no events in the historical record to make landfall as a Cat 4 or Cat 5 in the Northeast Only two events ever made landfall as a Cat 3 in the historical record: 1869 & 1938 Two additional events were Cat 3 events but decayed just before landfall: 1961 & 1969 One event remained a Cat 3 but did not make landfall: 1958

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Increased Severity
Can earthquakes be impacted by climate change? Probably not, but the 9.0 magnitude event exceeded all scientific expectations on this fault system

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Need For New Capabilities

Partners to filter through the ongoing scientific debate, derive meaningful understanding of how the risk is evolving and integrate this knowledge into risk management. What perils may be most influenced by climate change?

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Opportunities
Reaction to climate change is creating opportunity for insurers.

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Dont Panic
Day after tomorrow scenarios are unrealistic. Traditional approaches to risk understanding, including probabilistic event sets and disaster scenarios, will continue to be effective. The level of scientific investment into these problems is enormous and ongoing. This investment will likely lead to an understanding of risk that is superior to what we have today even with the changes from global warming warming.

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Contact Information
Dan Dick Executive Managing Director Aon Benfield Analytics @ dan.dick@aonbenfield.com (817) 296.2283

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