Designing global event sets of floods and tropical cyclones under future climates for underwriting, capital management and regulatory purposes

With mounting pressure coming from regulators and other bodies worldwide, the financial services industry (banks, insurers, and reinsurers) will soon need to disclose and stress test their solvency and profitability to various climate scenarios. The work from the Task Force on Climate-related Financial Disclosures (TCFD) thus provides guidance as to how it should be accomplished. Physical risk assessment of the impacts of climate change remains however an important challenge for the global reinsurance industry requiring catastrophe models to be connected to climate models.

Diversification of atmospheric perils: top-down flood and tropical cyclone models with applications to the (re)insurance industry

Just like the idiom says, to not put all your eggs in one basket, insurance and reinsurance are founded on diversification. Pooling among policyholders, lines of businesses, perils, etc., are typical ways to achieve an adequate level of diversification to lower required capital. However, there are several factors that can act to hamper diversification, even on an international basis: namely the concentration of wealth and population in a few large countries (USA, China), and natural climate phenomena such as El Niño and climate change that both affect many countries.