It’s neither possible or wise for insurers and reinsurers to speculate and make price changes in models to account for global warming that people think will occur in two decades time, according to Torsten Jeworrek, Chief Executive Officer (CEO) of Reinsurance, Munich Re.
In light of increased catastrophe losses in both 2017 and 2018, including unprecedented wildfires in California, the potential for more frequent and severe natural catastrophe events as a result of the impacts of climate change is again a hot industry topic.
Speaking during the reinsurance giant’s investor call surrounding its January 1st 2019 renewals experience, Jeworrek said that whether or not global warming is reflected in catastrophe reinsurance pricing, depends on what you expect from global warming, and “which type of regional implications you anticipate in the future. So, the answer is not clear in my opinion.”
For insurers, reinsurers and third-party capital participants, 2017 and 2018 served as a reminder that, after a decade without a major landfalling U.S. hurricane, it’s always a matter of when and not if disaster strikes. 2017 is one of the costliest catastrophe loss years on record for the re/insurance market, and while 2018 losses were somewhat lower, they remained above the long-term average.
The potential impacts of climate change and the connection with more frequent and severe storms, droughts, flooding, and other natural catastrophe events is an ongoing debate that is inherently complex and challenging to predict, model and price.
Jeworrek noted that where we see changes in risk and exposures driven by climate change, the models need to be updated to reflect these changes, but continued to caution re/insurers against being speculative about the future.
“What is not possible and not wise is to make rough speculations and make price changes in models for global warming that we think will come in 20 years from now. It is big and bad for society, but for insurance and reinsurance we have to make very gradual and regional changes to take in the impacts of that,” said Jeworrek.
Interestingly, Jeworrek added that one of the global warming impacts where the firm believes changes are evident are with wildfires, and here models are updated accordingly. The reinsurer announced that it is reviewing its exposure to wildfires globally after outbreaks in California, Chile, South Africa, parts of Europe, Canada, and elsewhere, resulting in consecutive years of large event wildfire losses of between €400 million to €500 million.
At the same time, Munich Re said one small portfolio had suffered from the accumulation of many smaller weather claims, an aggregate loss cover, and, as a result is reducing this exposure. But despite rising wildfire losses and high levels of cat losses over the last two years, Jeworrek said Munich Re sees no reason to revisit or increase its large natural catastrophe budget.
“In what direction would it develop overtime and accordingly to our model? Most likely no change. If we had to change it then probably more downward than upward,” said Jeworrek. Adding, “The only small question is the modelling of wildfires.”
