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09

Reinsurers 'could be underestimating climate change risks'

Open-access content Wednesday 3rd September 2014 — updated 8.15am, Tuesday 5th May 2020

Reinsurers are underestimating their exposure to the possibility of climate change catastrophe losses by as much as 50%, credit agency Standard and Poor's has warned today.

Basing its findings on the past ten years' loss experience to test the potential impact of climate change, it noted that most reinsurers' highest catastrophe disasters occurred in either 2005 or 2011. Based on analysis of these losses, the firm said that reinsurers' exposure to catastrophe losses could be substantially higher than currently estimated as a result of climate change, which could hit key ratings measurements used to assess reinsurers' capital adequacy.

The industry has recognised that climate change will likely have a significant impact on future weather events, S&P found. Many firms were actively sponsoring scientific research into climate change, while relying on their ability to adjust premiums to reflect any gradual increase in weather-related claims over time - most non-life business is renewed yearly. 

But S&P stated most reinsurers did not believe that climate change was having a material scientific impact on their current risk exposure, and also did not they think it would likely have an effect in the near future. 

S&P said it was unwise for reinsurers to rule out the possibility that climate change had already begun to affect reinsurer's risk exposure, especially given the number of catastrophe events recently triggered by extreme weather. 

This article appeared in our September 2014 issue of The Actuary .
Click here to view this issue

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