Dr. Jamie Rodney, Executive Director of ILS Analytics at investment manager Twelve Capital, has called for more extensive collaboration between risk managers and catastrophe modellers.
Dr. Rodney’s comments came during our recent Prospectus 2021 conference, and delved into the work Twelve Capital has been doing to better understand hurricane risk specifically.
“From a cat model perspective – having worked and collaborated with cat model vendors and having worked as a cat model vendor myself – there’s a lot of cutting edge science, there’s a lot of leading scientists working on this field,” he explained.
Dr. Rodney added that, if you don’t open up the model, or work closely with cat model vendors, you can’t truly know what you’re adjusting.
“You could be introducing more bias to something that already could be biased,” he noted. “I think 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.”
While climate change remains one of the primary variables for cat risk vendors, Dr. Rodney cautioned against ignoring other potential uncertainties.
“We’re seeing other uncertainties, or possibly larger deltas, in things like supply/demand and underwriting discipline,” he explained.
“Even during the 20 years of high-end activity – and I know people talk about the hurricane drought between 2012 and 2017 – that was a period where from a pricing perspective, rates declined dramatically. So, even within a changing or potentially warming climate, you had a window of five years of no losses.”
Dr. Rodney stated that, regardless of whether its statistically significant or just luck of the draw, this underlines the importance of other uncertainties and should highlight other areas of potential volatility unrelated to climate change.