Reinsurance News

More collaboration needed on cat modelling: Twelve Capital’s Jamie Rodney

13th November 2020 - Author: Matt Sheehan

Dr. Jamie Rodney, Executive Director of ILS Analytics at ILS investment manager Twelve Capital, has argued that more collaboration is needed across the re/insurance industry when it comes to catastrophe modelling.

Rodney’s keynote speech at the online Prospectus 2021 conference yesterday offered some insights into peak catastrophe perils and the climate factor.

But when it comes to understanding the uncertainty around the output of catastrophe models, he suggested that different industry players could benefit from working together more closely.

“I would actually argue that there needs to be more collaboration across the industry,” Rodney said during a Q&A session after his speech.

“From a cat model perspective, working and collaborating with cat model vendors and having worked at a cat model vendor myself, there’s a lot of cutting edge science, there’s a lot of leading scientists working on this field.”

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Run in collaboration with our sister publication, Prospectus 2021 aims to address issues relevant to both the traditional and alternative reinsurance capital markets at an important time for the industry.

The conference ends on November 18th and will bring together 23 industry experts for a series of keynote speeches and panel discussions, sponsored by Kroll Bond Rating Agency (KBRA).

During Rodney’s speech on the inaugural day of the conference, attendees learned how Twelve Capital has been seeking to better understand hurricanes and the potential influence of climate change, as well as how to model these changing risks.

“As a risk taker it’s all about understanding, what am I looking at? What is the uncertainty or the possible changes? And then, again, it’s around risk margin. If you understand the risk then you can start talking about risk-adjusted, how much risk you want to take,” he explained.

The first day of Prospectus 2021 also saw executive panellists broach the COVID-19 outlook for the re/insurance & ILS industry, with David Flandro, Managing Director at Hyperion X Analytics, arguing that the private market is fully capable of handling pandemic risk, but not the accompanying government actions.

But while climate change is certainly adding a lot of uncertainty for catastrophe risk vendors, Rodney stressed that there are also a great many other variables that modelers have to contend with.

“Climate change is one, past climate, future climate, but also we see other uncertainties or possibly larger deltas in things like supply / demand, underwriting discipline,” he explained.

Rodney noted that even over the past two decades, which have seen elevated catastrophe activity on average, the lack of hurricanes between 2012 and 2017 is often given much significance.

“But actually, that is a period where from a pricing perspective, rates declined dramatically,” he added. “So, even within a changing or potentially warming climate, you had a window of five years of no losses.”

“Whether that’s statistically significant or just luck of the draw. Is that a larger issue in the market than actually the variation of climate change year-on-year? And, I don’t know the answer, but also it relates to other uncertainties and other areas of potential volatility, there’s not just climate change.

“On top of that, which we haven’t touched on in this talk on purpose, it’s risk mitigation. Is the worst case scenario a reasonable scenario moving into the next 40 years? How’s urbanisation going to change? There’s huge deltas everywhere, and you have to understand those to make sure that you’ve got credible risk margins above that risk level.”

To watch every session on-demand please visit the Prospectus 2021 website.

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