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. The research project aims to analyze how these factors may affect the reinsurance industry’s capability to diversify risks and thus, its ability to insure losses from natural hazards that are too significant for local insurance companies or governments to assume. As a result of this research, the partner will improve its risk management and long-term solvency, in addition to reduce costs to its clients and enhance their protection.