Reinsurance News

Climate models are becoming increasingly critical: Aeolus

23rd November 2021 - Author: Luke Gallin

Insurance and reinsurance companies are naturally at the forefront of understanding climate change risk, and as the climate and resilience debate intensifies around the world, climate models are becoming more important, according to Aeolus Capital Management Ltd.

aeolus-capital-management-climate-models-ilsArtemis, our insurance-linked securities (ILS) focused sister site, recently hosted a live interview with Dr. Pete Dailey, Head of Research, and Frank Fischer, Partner and Chief Analytics Officer at specialist reinsurance and retrocession investment fund manager, Aeolus.

For the most part, the company targets property catastrophe exposures in its underwriting, which means that climate change and risks are a hot topic for the ILS manager, as they are for the broader ILS and re/insurance sectors.

Given Aeolus’ remit and also the notable rise in the frequency and severity of secondary peril events, such as floods and wildfires, Dr. Dailey and Fischer explored the importance of climate risk models and importantly, how these tools are evolving and benefitting their work.

“It’s becoming more and more critical every day. A day does not go by when I don’t see an article, or have some exchange with a colleague, on the topic of climate change,” said Dr. Dailey.

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“The insurance and reinsurance industry are really on the leading-edge of understanding climate change risk. It’s nothing new to us, climate analytics has been a fundamental part of risk management for the twenty-plus years that I’ve been in the industry,” he added.

Dr. Dailey continued to explain that climate analytics has become an additional layer on top of what Aeolus already understands and is trying to optimise, as a part of its holistic approach to risk management.

“We consider the past and the future, but most importantly we consider the present and how the current climate regime may affect the risk in the coming year and years,” said Dr. Dailey.

As well as discussing Aeolus’ use of climate modelling, data, and analytics, and how this is factored into decision-making, Fischer explained that climate change is also front and centre with its investors.

“We have to spend a lot of time informing our investors about this and giving them the data and research to properly evaluate the asset class,” said Fischer.

“Our job is to give them all that information and try to get, as much as we can, a real perspective of the risk so they can make good decisions.

“In the end, our job is to inform our investors. They’re ultimately our partners and our research and investment in the models is going to be a key component of their decision-making process.

“In any industry, ours no different, we’ve got to constantly challenge our assumptions and try to improve the product. So obviously the impact of climate is front and centre and a key area of research,” said Fischer.

The full video interview is embedded below and can also be viewed in full, along with previous Artemis Live video interviews.

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