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EBC Climate Change Program Series, Part Three:

Insurance Industry Perspective on Risk Related to

Climate Change for Coastal New England

Program Series, Part Three: Insurance Industry Perspective on Risk Related to Climate Change for Coastal New

Welcome

Ruth Silman

Chair, EBC Climate Change & Air Committee

Ruth Silman Chair, EBC Climate Change & Air Committee Managing Partner Nixon Peabody LLP Environmental Business

Managing Partner

Nixon Peabody LLP

Environmental Business Council of New England Energy Environment Economy

Introduction

Kelly Knee

Program Chair & Moderator

Director of Coastal Hazard Services

RPS ASA

& Moderator Director of Coastal Hazard Services RPS ASA Environmental Business Council of New England Energy

Environmental Business Council of New England Energy Environment Economy

Catastrophe Modeling for the Insurance

Industry: Accounting for Climate Change

Peter Sousounis, Ph.D.

Assistant Vice President Director of Meteorology

Ph.D. Assistant Vice President Director of Meteorology AIR Worldwide Environmental Business Council of New England

AIR Worldwide

Environmental Business Council of New England Energy Environment Economy

Cat Modeling for the Insurance Industry:

Accounting for Climate Change

Cat Modeling for the Insurance Industry: Accounting for Climate Change Peter Sousounis, PhD CONFIDENTIAL ©2016 AIR

Peter Sousounis, PhD

Cat Modeling for the Insurance Industry: Accounting for Climate Change Peter Sousounis, PhD CONFIDENTIAL ©2016 AIR
Cat Modeling for the Insurance Industry: Accounting for Climate Change Peter Sousounis, PhD CONFIDENTIAL ©2016 AIR

CONFIDENTIAL

©2016 AIR

5

Presentation Outline

Presentation Outline 1. Insurance Industry Perspective 2. Climate Change and Weather Systems 3. What AIR is

1. Insurance Industry Perspective

2. Climate Change and Weather Systems

1. Insurance Industry Perspective 2. Climate Change and Weather Systems 3. What AIR is Doing CONFIDENTIAL

3. What AIR is Doing

1. Insurance Industry Perspective 2. Climate Change and Weather Systems 3. What AIR is Doing CONFIDENTIAL

CONFIDENTIAL

©2016 AIR

6

Insurance Industry Perspective

Insurance Industry Perspective CONFIDENTIAL ©2016 AIR 7
Insurance Industry Perspective CONFIDENTIAL ©2016 AIR 7
Insurance Industry Perspective CONFIDENTIAL ©2016 AIR 7

CONFIDENTIAL

©2016 AIR
©2016 AIR

7

EP Curves From Cat Models Indicate Loss Probabilities

cat models contain hundreds of thousands of scenarios

probabilities of extreme

events based on existing climate conditions

AAL indicates typical annual

climate conditions • AAL indicates typical annual loss • insurance industry sets rates based on their

loss

insurance industry sets rates

based on their portfolio-

specific information

annual loss • insurance industry sets rates based on their portfolio- specific information CONFIDENTIAL ©2016 AIR

CONFIDENTIAL

©2016 AIR

8

The Insurance Industry is Focused on the Short Term

• upcoming year may not be a standard year • insurance companies want to get
• upcoming year may not
be a standard year
• insurance companies
want to get some
advantage
• near-term outlook is
2 016
typically unreliable
H U R R I C A N E
S E A S O N
• landfalls uncorrelated to
basin activity
• climate conditioned
views are helpful
S O N • landfalls uncorrelated to basin activity • climate conditioned views are helpful CONFIDENTIAL

CONFIDENTIAL

©2016 AIR

9

Most Cat Models Based on Long-Term Historical Data

Most Cat Models Based on Long-Term Historical Data RP 1st half 2nd half entire 30 40
RP 1st half 2nd half entire 30 40 47 47 15 39 47 44 10
RP
1st half
2nd half
entire
30
40
47
47
15
39
47
44
10
37
44
42
5
36
42
38
Annual TC Frequency Basin X
mean
29.87097
29.83333
29.85246
50
stdev
5.518103
10.86622
8.502619
40
30
20
10
0
1950
1960
1970
1980
1990
2000
2010
Year
CONFIDENTIAL
©2016 AIR
Annual TC Count

10

Is Climate Change Affecting Atlantic Hurricanes?

Atlantic Basin Hurricane Activity by Decade

Hurricanes? Atlantic Basin Hurricane Activity by Decade 180 150 120 90 60 30 0 1850s 1860s
180 150 120 90 60 30 0 1850s 1860s 1870s 1880s 1890s 1900s 1910s 1920s
180
150
120
90
60
30
0
1850s
1860s
1870s
1880s
1890s
1900s
1910s
1920s
1930s
1940s
1950s
1960s
1970s
1980s
1990s
2000s
Named
Hurricanes
Major
CONFIDENTIAL
©2016 AIR

11

Is Climate Change Affecting Atlantic Hurricanes?

Atlantic Basin Hurricane Activity by Decade

Hurricanes? Atlantic Basin Hurricane Activity by Decade 180 150 120 90 60 30 0 y =

180

150

120

90

60

30

0

y = 3.7985x + 59.4

y = 1.2235x + 43.475

y = 1.4471x + 6.95
y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95
0 y = 3.7985x + 59.4 y = 1.2235x + 43.475 y = 1.4471x + 6.95

1850s

1860s

1870s

Namedy = 1.2235x + 43.475 y = 1.4471x + 6.95 1850s 1860s 1870s 1880s 1890s Hurricanes

1880s 1890s Hurricanes
1880s
1890s
Hurricanes

1900s

6.95 1850s 1860s 1870s Named 1880s 1890s Hurricanes 1900s 1910s 1920s 1930s Major Linear (Named) 1940s

1910s

1920s

1930s

Major

Named 1880s 1890s Hurricanes 1900s 1910s 1920s 1930s Major Linear (Named) 1940s 1950s 1960s Linear (Hurricanes)

Linear (Named)

1940s

1950s

1960s

Linear (Hurricanes) CONFIDENTIAL
Linear (Hurricanes)
CONFIDENTIAL
1970s 1980s 1990s Linear (Major)
1970s
1980s
1990s
Linear (Major)

2000s

©2016 AIR

12

Is Climate Change Affecting Atlantic Hurricanes?

Is Climate Change Affecting Atlantic Hurricanes? US Hurricane Landfall Activity by Decade 30 25 20 15

US Hurricane Landfall Activity by Decade

30 25 20 15 10 5 0 1850s 1860s 1870s 1880s 1890s 1900s 1910s 1920s
30
25
20
15
10
5
0
1850s
1860s
1870s
1880s
1890s
1900s
1910s
1920s
1930s
1940s
1950s
1960s
1970s
1980s
1990s
2000s
Hurricanes
Major
CONFIDENTIAL
©2016 AIR

13

Is Climate Change Affecting Atlantic Hurricanes?

US Hurricane Landfall Activity by Decade

30

25

20

15

10

5

0

y = -0.3235x + 20.25

y = 0.0544x + 5.725

30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +
30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +
30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +
30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +
30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +
30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +
30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +
30 25 20 15 10 5 0 y = -0.3235x + 20.25 y = 0.0544x +

1850s

1860s

1870s

1880s

1890s

1900s

1910s

1920s

1930s

1940s

1950s

1960s

1970s

1980s

1990s

2000s

 
  Hurricanes Major Linear (Hurricanes) Linear (Major)  

Hurricanes

  Hurricanes Major Linear (Hurricanes) Linear (Major)  

Major

  Hurricanes Major Linear (Hurricanes) Linear (Major)  

Linear (Hurricanes)

  Hurricanes Major Linear (Hurricanes) Linear (Major)  

Linear (Major)

 
2000s   Hurricanes Major Linear (Hurricanes) Linear (Major)   CONFIDENTIAL ©2016 AIR 14

CONFIDENTIAL

©2016 AIR

14

Climate Change and Extremes

Climate Change and Extremes CONFIDENTIAL ©2016 AIR 15
Climate Change and Extremes CONFIDENTIAL ©2016 AIR 15
Climate Change and Extremes CONFIDENTIAL ©2016 AIR 15

CONFIDENTIAL

©2016 AIR
©2016 AIR

15

Is Climate Change Affecting Our Weather Now?

CONFIDENTIAL ©2016 AIR
CONFIDENTIAL
©2016 AIR
Is Climate Change Affecting Our Weather Now? CONFIDENTIAL ©2016 AIR 16

16

The Analogy with Baseball and Steroids

SEASONSEASON WITHOUTWITHOUT STEROIDSSTEROIDS
SEASONSEASON WITHOUTWITHOUT STEROIDSSTEROIDS
The Analogy with Baseball and Steroids SEASONSEASON WITHOUTWITHOUT STEROIDSSTEROIDS CONFIDENTIAL ©2016 AIR 17

CONFIDENTIAL

©2016 AIR

17

Changes in the Mean and Variability will Increase the Likelihood of Extreme Weather

18 CONFIDENTIAL ©2016 AIR
18
CONFIDENTIAL
©2016 AIR

Other Theories Support More Weather Extremes

Other Theories Support More Weather Extremes Arctic ice melt has likely reduced the pole to equator
Other Theories Support More Weather Extremes Arctic ice melt has likely reduced the pole to equator

Arctic ice melt has likely reduced the pole to equator

temperature difference, which can change the wavenumber and can cause stationary waves to occur more easily

July 1980 - normal year

cause stationary waves to occur more easily July 1980 - normal year CONFIDENTIAL July 2011 -

CONFIDENTIAL

July 2011 - heat wave year

cause stationary waves to occur more easily July 1980 - normal year CONFIDENTIAL July 2011 -

©2016 AIR

19

The Science of Climate Change Attribution

The Science of Climate Change Attribution overall confidence in event attribution is strongest for extreme event
The Science of Climate Change Attribution overall confidence in event attribution is strongest for extreme event

overall confidence in event attribution

is strongest for extreme event types

that are:

adequately simulated in climate models

have a long-term historical record of observations

are linked to human-caused climate change through an understood and

robustly simulated physical mechanism

CONFIDENTIAL

©2016 AIR

20

Heat Waves and Heavy Rains are Relatively Easy to Understand, But What About…

Tropical cyclones

Extratropical cyclones Severe thunderstorms
Extratropical cyclones
Severe thunderstorms
Understand, But What About… Tropical cyclones Extratropical cyclones Severe thunderstorms CONFIDENTIAL ©2016 AIR 21

CONFIDENTIAL

©2016 AIR

21

Tropical Cyclones (TCs) Need Several Ingredients to Form

1.

SST > 26.5 C

2.

Mid-level moisture

3.

Low to mid-level shear

4.

Coriolis Force

5. Thermodynamic instability

6. Pre-existing disturbance

shear 4. Coriolis Force 5. Thermodynamic instability 6. Pre-existing disturbance CONFIDENTIAL ©2016 AIR 22
shear 4. Coriolis Force 5. Thermodynamic instability 6. Pre-existing disturbance CONFIDENTIAL ©2016 AIR 22

CONFIDENTIAL

©2016 AIR

22

TC Frequency Will Likely Decrease

TC Frequency Will Likely Decrease CONFIDENTIAL ©2016 AIR 23
TC Frequency Will Likely Decrease CONFIDENTIAL ©2016 AIR 23

CONFIDENTIAL

©2016 AIR

23

A Weaker Hadley Circulation is the Explanation

Weaker circulation, narrower ascent, broader descent, and drier tropical

troposphere will likely reduce TC frequency

current climate future climate
current climate
future climate

From Fu (PNAS 2015)

troposphere will likely reduce TC frequency current climate future climate From Fu (PNAS 2015) CONFIDENTIAL ©2016

CONFIDENTIAL

©2016 AIR

24

Another Component of Hurricane Risk is Storm Surge

Another Component of Hurricane Risk is Storm Surge - Sea level has increased globally ~20 cm
Another Component of Hurricane Risk is Storm Surge - Sea level has increased globally ~20 cm

- Sea level has increased globally ~20

cm in the last century

- Projections are that increases will be 2- 5X greater by 2100

- Regional changes could be very

different from global averages

- Impacts on tsunamis and other coastal storms could be very significant

CONFIDENTIAL

©2016 AIR

25

What AIR is Doing

What AIR is Doing CONFIDENTIAL ©2016 AIR 26
What AIR is Doing CONFIDENTIAL ©2016 AIR 26
What AIR is Doing CONFIDENTIAL ©2016 AIR 26

CONFIDENTIAL

©2016 AIR
©2016 AIR

26

Frequent Model Updates Incorporate Climate Change

- AIR updates its

catastrophe models every

5-6 years

- Signature of climate

change is continuously

folded in

- Water-based perils use

latest DTMs

- Signature of climate change is continuously folded in - Water-based perils use latest DTMs CONFIDENTIAL
- Signature of climate change is continuously folded in - Water-based perils use latest DTMs CONFIDENTIAL

CONFIDENTIAL

©2016 AIR

27

AIR Has Looked at Climate Change Impacts by Developing Climate Change Conditioned Catalogs

Impacts by Developing Climate Change Conditioned Catalogs China Regional Sensitivities from wind - AAL UK Regional

China Regional Sensitivities from wind - AAL

UK Regional Sensitivities from wind - AAL

from wind - AAL UK Regional Sensitivities from wind - AAL Source: http://www.abi.org.uk UK Regional Sensitivities
from wind - AAL UK Regional Sensitivities from wind - AAL Source: http://www.abi.org.uk UK Regional Sensitivities
from wind - AAL UK Regional Sensitivities from wind - AAL Source: http://www.abi.org.uk UK Regional Sensitivities

Source: http://www.abi.org.uk

UK Regional Sensitivities from flood - AAL

http://www.abi.org.uk UK Regional Sensitivities from flood - AAL (Based on 2008 GBP values) CONFIDENTIAL ©2016 AIR

(Based on 2008 GBP values)

CONFIDENTIAL

©2016 AIR

http://www.abi.org.uk UK Regional Sensitivities from flood - AAL (Based on 2008 GBP values) CONFIDENTIAL ©2016 AIR

28

In 2013, AIR Looked at Climate Change Impacts in the South Pacific

decr. incr. changes in AAL
decr.
incr.
changes in AAL
Impacts in the South Pacific decr. incr. changes in AAL decr. incr. changes in 250 yr
Impacts in the South Pacific decr. incr. changes in AAL decr. incr. changes in 250 yr
Impacts in the South Pacific decr. incr. changes in AAL decr. incr. changes in 250 yr
Impacts in the South Pacific decr. incr. changes in AAL decr. incr. changes in 250 yr
Impacts in the South Pacific decr. incr. changes in AAL decr. incr. changes in 250 yr
decr. incr. changes in 250 yr RP losses
decr.
incr.
changes in 250 yr RP losses
changes in AAL decr. incr. changes in 250 yr RP losses With financial support from the
changes in AAL decr. incr. changes in 250 yr RP losses With financial support from the
changes in AAL decr. incr. changes in 250 yr RP losses With financial support from the

With financial support from the European Union

In the framework of the ACP-EU Natural Disaster Risk Reduction Program managed by the GFDRR

CONFIDENTIAL

©2016 AIR

29

What We Are Doing Now Developing NAO Conditioned Catalogs for European ETC Model

Developing NAO Conditioned Catalogs for European ETC Model North Atlantic Oscillation Index (Dec-Mar) - Negative NAO
North Atlantic Oscillation Index (Dec-Mar) - Negative NAO years lead to cold and snowy New
North Atlantic Oscillation Index (Dec-Mar)
- Negative NAO years lead to cold and
snowy New England Winters in the U.S.
and stormy activity for southern Europe
- This technique can be applied to climate
change GCM output

CONFIDENTIAL

©2016 AIR

30

Positive NAO years lead to warm snow free New England Winters in the U.S. and stormy activity for northern Europe

-

AIR 30 Positive NAO years lead to warm snow free New England Winters in the U.S.
AIR 30 Positive NAO years lead to warm snow free New England Winters in the U.S.

What We Are Doing Now Developing Climate Conditioned Catalogs for U.S. Hurricane Model

- Negative ENSO years lead to

high probability of landfalls

- Positive AMO years lead to high probability of landfalls

- Negative NAO years lead to

high probability of landfalls

ENSO - El Nino-Southern Oscillation AMO - Atlantic Multi-decadal Oscillation

NAO - North Atlantic Oscillation

AMO - Atlantic Multi-decadal Oscillation NAO - North Atlantic Oscillation -ENSO (SHR) CONFIDENTIAL ©2016 AIR 31
-ENSO (SHR)
-ENSO
(SHR)

CONFIDENTIAL

©2016 AIR

31

What We Are Doing Now Publications

Impacts of Climate Change on Extreme Weather AIR Consolidates the Latest Results
Impacts of Climate Change on
Extreme Weather
AIR Consolidates the Latest Results
Climate Change on Extreme Weather AIR Consolidates the Latest Results This Will Be Updated! CONFIDENTIAL ©2016
Climate Change on Extreme Weather AIR Consolidates the Latest Results This Will Be Updated! CONFIDENTIAL ©2016

This Will Be Updated!

CONFIDENTIAL

©2016 AIR

32

What We Are Planning To Do Continue to Analyze

- Do we see a signal or signals in the mean in the variability?

- How can we include signals when they are just appearing?

- How do we reconcile different signals in different regions and from different

analyses?

From Wang et al 2013

regions and from different analyses? From Wang et al 2013 High Latitudes-North America ETC Count High
High Latitudes-North America ETC Count
High Latitudes-North America ETC Count
High Latitudes-North America ETC Intensity
High Latitudes-North America ETC Intensity

CONFIDENTIAL

©2016 AIR

33

What We Are Planning To Do Scenarios

What would a stronger Sandy look like with a ½ meter of sea level rise?
What would a stronger Sandy look
like with a ½ meter of sea level rise?
Sandy2012
What would a stronger Vera look like
with a ½ meter of sea level rise?
Vera 1959
Sandy2012 What would a stronger Vera look like with a ½ meter of sea level rise?

CONFIDENTIAL

©2016 AIR

34

Summary

- Climate change happening slowly

- Insurance Industry focuses on next year

- Catastrophe models are updated frequently and somewhat account for climate change

- Climate change conditioned catalogs are a standard cat modeling approach to addressing longer term impacts from climate change

are a standard cat modeling approach to addressing longer term impacts from climate change CONFIDENTIAL ©2016

CONFIDENTIAL

©2016 AIR

35

Commercial Insurance: Understanding and

Managing Climate Change Uncertainty

Understanding and Managing Climate Change Uncertainty Dr. Louis Gritzo Vice President of Research FM Global Stuart

Dr. Louis Gritzo

Vice President of Research FM Global

Stuart Keller

Engineering Manager Operations Vice President FM Global

Environmental Business Council of New England Energy Environment Economy

Understanding and Managing Climate Change Uncertainty

[PUBLIC]

Dr. Louis A Gritzo, VP, Research

Mr. Stuart Keller, VP, Boston Operations

FM Global: A Unique Company

Mutual Ownership

“Majority of Loss is Preventable” - Through

Research/Engineering

Commercial and Industrial Property Insurance - A Specialty Company

[PUBLIC]

Same Fundamental Business Model for 180 years

[PUBLIC]

Same Fundamental Business Model for 180 years [PUBLIC]

FM Global - Vital Stats

> 5,000 employees

1,800 engineers

39 offices worldwide

> 100,000 client facility

risk assessments/year

Engineering-Based

Underwriter

[PUBLIC]

39 offices worldwide • > 100,000 client facility risk assessments/year • Engineering-Based Underwriter [PUBLIC]
39 offices worldwide • > 100,000 client facility risk assessments/year • Engineering-Based Underwriter [PUBLIC]
39 offices worldwide • > 100,000 client facility risk assessments/year • Engineering-Based Underwriter [PUBLIC]

FM Global Research Campus

FM Global Research Campus Natural Hazards Hydraulics [PUBLIC] Research Certification Testing Education Electrical Fire

Natural Hazards

Hydraulics
Hydraulics

[PUBLIC]

FM Global Research Campus Natural Hazards Hydraulics [PUBLIC] Research Certification Testing Education Electrical Fire

Research Certification Testing Education

Research Certification Testing Education
Campus Natural Hazards Hydraulics [PUBLIC] Research Certification Testing Education Electrical Fire Technology Explosions
Electrical
Electrical
Fire Technology
Fire Technology
Explosions
Explosions

Center for Property Risk Solutions

[PUBLIC]
[PUBLIC]
Mitigation
Mitigation

[PUBLIC]

Adaptation
Adaptation
[PUBLIC]
[PUBLIC]
[PUBLIC]

[PUBLIC]

[PUBLIC]
[PUBLIC]

[PUBLIC]

Natural Hazards:
Natural
Hazards:

[PUBLIC]

How are they

changing?

The reports are out…
The reports are out…

[PUBLIC]

The facts

The facts [PUBLIC]

[PUBLIC]

Fact 1: The earth is hotter

Yearly global surface temperature anomalies 1900-2015

1 0.5 0 -0.5 -1 -1.5 Difference from 20 th century average (°C)
1
0.5
0
-0.5
-1
-1.5
Difference from 20 th century average (°C)

[PUBLIC]

Fact 2: Less ice

Arctic
Arctic

[PUBLIC]

Fact 3: Tropical cyclones steady

Fact 3: Tropical cyclones steady [PUBLIC]

[PUBLIC]

Fact 4: Tornado pattern returns

Ratio of (E)F0 Tornado Count to Total Tornado Count Approximate Period of No Nationwide Radar
Ratio of (E)F0 Tornado Count to Total Tornado Count
Approximate Period of
No Nationwide Radar
Network
Annual Number
of EF3-EF5 Tornadoes
EF Scale
(2007)
F Scale
(1971)

[PUBLIC]

Fact 5: More flooding

Fact 5: More flooding [PUBLIC]

[PUBLIC]

Fact 5a: Sea levels rise

Fact 5a: Sea levels rise [PUBLIC]

[PUBLIC]

Fact 5b: Increased rainfall

Fact 5b: Increased rainfall [PUBLIC]

[PUBLIC]

Climate Science Roundtable

[PUBLIC]

• • • Prof. Minghua Zhang (Stony Brook)
• Prof. Minghua Zhang
(Stony Brook)
[PUBLIC] • • • Prof. Minghua Zhang (Stony Brook) Precipitation in the US White Paper in

Precipitation in the US

White Paper in April

Prof. Kerry Emanuel (MIT)

Prof. Dennis Lettenmaier (UCLA)

Dr. Kevin Trenberth (NCAR)

[PUBLIC]

[PUBLIC]

Our Client Approach

Field Engineer

Location Evaluation

Evaluate, Quantify and Provide Solutions

Communication with the Local Client

Part of the Client Service Team

Client Service Team

Underwriting/Policy/Compliance

Consistency across the program (engineering etc.)

Respond to Location Evaluations

Communication with the Corporate Client

[PUBLIC]

the program (engineering etc.) • Respond to Location Evaluations • Communication with the Corporate Client [PUBLIC]

Know your Flood Exposure

Know your Flood Exposure [PUBLIC]
Know your Flood Exposure [PUBLIC]
Know your Flood Exposure [PUBLIC]

[PUBLIC]

Damage!

Damage! [PUBLIC]

[PUBLIC]

Evaluation

Desktop / Field Engineers

FEMA/FIRM Levee Database

Other Insured Locations

Compare Elevations

Finished Floor vs. Flood

[PUBLIC]

Compare Elevations

100yr vs. 500yr

Database Other Insured Locations Compare Elevations Finished Floor vs. Flood [PUBLIC] Compare Elevations 100yr vs. 500yr

Evaluation

Evaluation [PUBLIC]
Evaluation [PUBLIC]
Evaluation [PUBLIC]
Evaluation [PUBLIC]

[PUBLIC]

Evaluation

Evaluation [PUBLIC]

[PUBLIC]

Quantification

500 yr
500 yr

[PUBLIC]

Have a plan! - Reduce Damage & Downtime

Warning Time

Practical

Unique/Valuable

Protect some buildings

Utilities

Etc

FERP

Flood Emergency Response Plan

[PUBLIC]

 Unique/Valuable  Protect some buildings  Utilities  Etc FERP Flood Emergency Response Plan [PUBLIC]
 Unique/Valuable  Protect some buildings  Utilities  Etc FERP Flood Emergency Response Plan [PUBLIC]
 Unique/Valuable  Protect some buildings  Utilities  Etc FERP Flood Emergency Response Plan [PUBLIC]

Permanent Options

Permanent Options [PUBLIC] E L E V A T E PROTECT IN PLACE

[PUBLIC]

E

L

E

V

A

T

E

Permanent Options [PUBLIC] E L E V A T E PROTECT IN PLACE
Permanent Options [PUBLIC] E L E V A T E PROTECT IN PLACE

PROTECT

IN

PLACE

Permanent Options [PUBLIC] E L E V A T E PROTECT IN PLACE

Flood Barriers - FM 2510

Flood Barriers - FM 2510 [PUBLIC]

[PUBLIC]

New Flood Mitigation Standards

Flood Mitigation beyond 3ft

Semi-Permanent Barriers • Installation • FM Approval Standard (add to 2510) [PUBLIC]
Semi-Permanent Barriers
• Installation
• FM Approval Standard
(add to 2510)
[PUBLIC]

Take-Aways for New England Businesses

1. Flood Management is Key to Resilience

Riverine

Coastal Storm Surge

Surface Water/Flash Flooding

2. Site Specifics are Critical

3. Many Losses are Preventable

Know the FACTS about the Hazard

Response Plan (FERP)

Physical Risk Mitigation

[PUBLIC]

[PUBLIC]

Questions?

Industry Reaction to Climate Change

Uncertainty: Underwriting and Investment

Max Messervy

Manager, Insurance Program Ceres

and Investment Max Messervy Manager, Insurance Program Ceres Environmental Business Council of New England Energy

Environmental Business Council of New England Energy Environment Economy

Insurance Industry Reaction to Climate Change Uncertainty: Underwriting and Investments Max Messervy Manager, Insurance
Insurance Industry Reaction to Climate Change Uncertainty: Underwriting and Investments Max Messervy Manager, Insurance

Insurance Industry Reaction to

Climate Change Uncertainty:

Underwriting and Investments

Max Messervy Manager, Insurance Program, Ceres

July 12, 2016

Presentation Outline 1. Introduction to Ceres 2. Climate Change Policy & Business Context: COP21 and

Presentation Outline

1. Introduction to Ceres

2. Climate Change Policy & Business Context:

COP21 and Climate Risk Disclosure

1. Leading Insurer Climate Risk Reporting

Practices & Strategies

2. Q&A

Mobilize Business & Investor Leadership to Build a Thriving, Sustainable Global Economy The Ceres Coalition

Mobilize Business & Investor Leadership

to Build a Thriving, Sustainable Global Economy

The Ceres Coalition More than 130 organizations, including environmental experts, public interest groups and
The Ceres Coalition
More than 130
organizations, including
environmental experts,
public interest
groups and investors.
Company Network
More than 75 members in over
20 different economic sectors
More than 75 members in over 20 different economic sectors Investor Network Over 100 members currently

Investor Network

Over 100 members

currently representing more than $13 trillion AUM

20 different economic sectors Investor Network Over 100 members currently representing more than $13 trillion AUM
20 different economic sectors Investor Network Over 100 members currently representing more than $13 trillion AUM
20 different economic sectors Investor Network Over 100 members currently representing more than $13 trillion AUM
20 different economic sectors Investor Network Over 100 members currently representing more than $13 trillion AUM
20 different economic sectors Investor Network Over 100 members currently representing more than $13 trillion AUM
20 different economic sectors Investor Network Over 100 members currently representing more than $13 trillion AUM

74

Climate Change Policy & Business Context: COP21 and Climate Risk Disclosure 75

Climate Change Policy & Business Context:

COP21 and Climate Risk Disclosure

What was COP21? (aka 2015 Paris Climate Conference)  The international political response to climate

What was COP21? (aka 2015 Paris Climate Conference)

What was COP21? (aka 2015 Paris Climate Conference)  The international political response to climate change

The international political response to climate change began at the Rio Earth Summit in 1992, where the ‘Rio Convention’ included the adoption

of the UN Framework on Climate Change (UNFCCC).

the adoption of the UN Framework on Climate Change (UNFCCC).  In 2015 COP21, for the

In 2015 COP21, for the first time in over 20 years of UN negotiations, achieved a legally binding and

international agreement on climate,

signed by 196 nations, to keep global warming “well below” 2 ° C.

France played a leading international role in hosting this seminal conference, and COP21 was one of the largest international conferences ever held in the country.

76

What set the stage for success at COP21?  Climate scientists are more certain than

What set the stage for success at

COP21?

What set the stage for success at COP21?  Climate scientists are more certain than ever

Climate scientists are more certain than ever about the risks of climate change, and world leaders are listening.

Over 185 nations pledged to reduce emissions as part of a global deal before COP21 opened, building momentum.

The years since Copenhagen have seen spectacular growth in renewables, in 2015 $329 billion in “new money” was invested in clean energy.

National and regional climate action both to build climate resilience and invest in renewables has huge momentum.

The world's largest GHG emitters are working together, e.g. China and the US surprised the world in 2014 with a historic joint announcement on climate actions.

The Paris Agreement – Key Provisions  Long-term mitigation goals: Global temperature rise is to

The Paris Agreement

Key Provisions

The Paris Agreement – Key Provisions  Long-term mitigation goals: Global temperature rise is to remain

Long-term mitigation goals: Global temperature rise is to remain “well below” 2 ° C (3.6 ° F) by 2100, with a stretch goal of 1.5 ° C (2.7 ° F).

Five year cycles of action: Countries have agreed to ramp up action

and ambition on emissions every five years, starting in 2020.

Global Stocktake: In 2018, countries will review actions to date, which will inform 2020 mitigation pledges. Starting in 2023, countries will

assess climate action (both mitigation and adaptation every 5 years.

Adaptation: Countries established a global goal of enhancing adaptive capacity, strengthening resilience and reducing vulnerability.

Loss and damage: Refers to the serious impacts of climate change,

and clarifies that no new legal liability is created for emitting countries by

the loss and damage provision.

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What are we aiming for? Staying within the 2 o C target GHG emissions (GtCO

What are we aiming for? Staying within the 2 o C target

GHG emissions

(GtCO 2 e/yr)

120

100

80

60

2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030: 2020 : ~52 GtCO 2 e
2030:
2030:

2020:

~52 GtCO 2 e

2020 : ~52 GtCO 2 e
2020 : ~52 GtCO 2 e
2020 : ~52 GtCO 2 e

2010:

47.5 GtCO 2 e

40

20

0

Baseline

~42 GtCO 2 e

2°C (> 66% chance) 1990 2000 2010 2020 2030 2040 2050 2100
2°C
(> 66% chance)
1990
2000
2010
2020
2030
2040
2050
2100

+ 7°C

+ 6°C

+ 5°C

+ 4°C

+ 3°C

+ 2°C

+ 1°C

+/- 0

Source: The Emissions GAP Report 2015 UNEP

Estimated global

warming by 2100 (°C relative to

1850-1900)

79
79

79

The Carbon Budget and Stranded Assets  In order to restrict global warming to below

The Carbon Budget and Stranded Assets

In order to restrict global warming to below 2 degrees Celsius, the world can only burn 1/3 of current proven oil, gas and coal reserves.

This is the world’s “carbon budget”, according to the Intergovernmental

Panel on Climate Change’s (IPCC) Fifth Assessment Report of 2014.

If these estimates are correct, then the vast majority of fossil fuel reserves will be unburnable stranded without the use of expensive and unproven carbon capture and storage (CCS) technology.

If global carbon pricing policies are enacted to address this risk:

Downside risks to fossil fuel-related financial assets could be huge.

The carbon budget = Curbing CO 2 emissions before 2050 To limit climate change below

The carbon budget = Curbing CO 2 emissions before 2050

To limit climate change below 2 0 C by the end of of the 21 st century, emissions between 2011 and 2050 need to be limited to far less than if we burned all current fossil fuel reserves.

emissions between 2011 and 2050 need to be limited to far less than if we burned
Climate Focus from Bank of England Governor & FSB Chair Mark Carney Source: Lloyd’s of

Climate Focus from Bank of England

Governor & FSB Chair Mark Carney

Climate Focus from Bank of England Governor & FSB Chair Mark Carney Source: Lloyd’s of London,

Source: Lloyd’s of London, October 7, 2015.

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“Breaking the Tragedy of the Horizon – Climate Change and Financial Stability” “We don’t need

“Breaking the Tragedy of the Horizon –

Climate Change and Financial Stability”

“We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors imposing a cost on future generations that the current

generation has no direct incentive to fix.

“That means beyond:

the business cycle;

the political cycle; and

the horizon of technocratic authorities, like central banks, who are bound by their mandates.” – Mark Carney

Excerpts from: “Breaking the Tragedy of the Horizon – Climate Change and Financial Stability” – Speech by Mark Carney at Lloyd’s of London, September 29, 2015.

Bank of England report ‘ The Impact of Climate Change on the U.K. Insurance Sector

Bank of England report ‘The Impact of

Climate Change on the U.K. Insurance Sector

Physical Risks: Weather-related events; direct and indirect impacts to property, supply chain disruption, etc.

Liability Risks: Parties suffering loss or damage from climate change-related effects seek compensation from responsible parties; insurers providing liability cover could be hit hard.

Transition Risks: Financial risks that arise from the low-carbon economy adjustment; the valuation of a range of assets could be reassessed in light of future policy, technology and physical risks

and opportunities.

“Risks to financial stability will be minimized if the transition begins early and follows a predictable path, thereby helping the market anticipate the transition to a 2-degree world” – Mark Carney

The FSB and Climate Risk • Bank of England Governor Mark Carney was appointed Chair
The FSB and Climate Risk • Bank of England Governor Mark Carney was appointed Chair

The FSB and Climate Risk

Bank of England Governor Mark Carney was appointed Chair of the FSB in 2011, while then Governor of the Bank of Canada.

In April 2015, the G20 group of developed nations requested that the FSB review how the financial sector can take account of climate-related issues.

On November 9, 2015, the FSB issued a “Proposal for a disclosure task force on climate-related risks”, an “industry-led”

effort to develop voluntary, consistent climate-related disclosures.

On December 4, 2015, the FSB announced the establishment of a Task Force on Climate-related Financial Disclosure (TCFD),

chaired by Michael Bloomberg.

The TCFD will work throughout 2016 to develop voluntary disclosure principles and leading practices.

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A New Era of Climate Disclosure • The TCFD climate disclosure proposal outlines the role

A New Era of Climate Disclosure

The TCFD climate disclosure proposal outlines the role more robust disclosures could play in aiding the transition towards a lower- carbon economy, as well as characteristics of effective disclosure.

A specific focus will be on the needs of market participants for information regarding physical, liability and transition risks from

climate change, including:

Investors

Lenders

Insurers; specifically with respect to underwriting information

Using climate-related disclosures, stakeholders could assess the credibility of firms’ transition plans, and analyze the changes in assets and liabilities that could result from a transition to a lower-

carbon economy.

Leading Insurer Climate Risk Management Practices & Strategies 87

Leading Insurer Climate Risk Management Practices & Strategies

Insurer Climate Risk Disclosure • Ceres : Insurer Climate Risk Disclosure Survey Report & Scorecard:

Insurer Climate Risk Disclosure

Ceres: Insurer Climate Risk Disclosure

Survey Report & Scorecard: 2014 Findings & Recommendations

Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations http://bit.ly/1uAKfeY 88
National Association of Insurance Commissioners (NAIC) Climate Change Involvement Major Milestones Release of 2016 Climate

National Association of Insurance Commissioners

(NAIC) Climate Change Involvement

Major Milestones

Release of 2016

Climate Risk Disclosure Survey and Assets or Liabilities? reports

NAIC Climate Change and Global Warming Task Force (1 st meeting summer 2006)

NAIC adopted the Insurer Climate Risk Disclosure Survey

(2009)

Revisions to the NAIC 2013 Financial Condition Examiners Handbook (2012)

NAIC released The Potential Impact of Climate Change on Insurance Regulation Survey became a multi-state
NAIC released The
Potential Impact of
Climate Change on
Insurance Regulation
Survey became
a multi-state
initiative: CA, NY,
PA, WA (2010)
Briefings for
Financial Examiners
on climate change
(2015)
(2008)
Municipalities
Examiners on climate change (2015) (2008) Municipalities 2005 2010 Associations, etc. 2016 Ceres issues Climate Risk

2005

2010

Associations,

etc.

2016

Ceres issues Climate Risk Disclosure Survey Reports for 2010, 2011, 2012 and 2014 reporting years

Source: NAIC, The Center for Insurance Policy & Research, November 24, 2014.

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Insurer Climate Risk Disclosure Survey Evolution – Response Growth Reporting Thresholds: 400 • 2010: >$500M

Insurer Climate Risk Disclosure Survey Evolution Response Growth

Reporting Thresholds: 400 • 2010: >$500M DPW 330 • 2011: >$300M DPW 300 • 2012:
Reporting Thresholds:
400
• 2010: >$500M DPW
330
• 2011: >$300M DPW
300
• 2012: >$100M DPW
200
184
State Participation:
• 2012 included CA,
88
100
NY, WA, CT & MN
0
2010
2011
2012
• 2013 reporting year
“new” states IL, MD
& NM
Insurer Climate Risk Disclosure Survey
Reporting Year
• 2014 reporting year:
IL & MD withdrew

Number

of

Insurance

Groups

Reporting

Source: Ceres analysis of Insurer Climate Risk Disclosure Survey data for reporting years 2010, 2011 and 2012.

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Ceres’ Analytical Methodology Six Climate Risk Management Themes Survey Question(s) 1 Climate Risk

Ceres’ Analytical Methodology

Six Climate Risk Management Themes

Survey

Question(s)

1

Climate Risk Governance

2

2

Enterprise-Wide Climate Risk Management

3, 4 & 5

3

Climate Change Modeling & Analytics

8

4

Stakeholder Engagement

6 & 7

5

Internal Greenhouse Gas Management

1

6

Quality of Climate Risk Disclosure

Overall survey

Climate Risk Management Ratings Hierarchy

1 st Quartile Rated Insurers = Leading Practices

2 nd Quartile Rated Insurers = Developing Practices

3 rd Quartile Rated Insurers = Beginning Practices

4 th Quartile Rated Insurers = Minimal Information

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Key Theme: Climate Risk Governance (Survey Question #2) Does the company have a climate change

Key Theme: Climate Risk Governance (Survey Question #2)

Does the company have a climate change policy with respect to risk management and investment management? If yes, please summarize. If no, how do you account for climate change in your risk management?

Where in the structure of the company is climate risk addressed?

Does the company have a dedicated point-person or team within the

company that is responsible for managing its climate change strategy?

What is the role of the board of directors in governing climate risk

management?

Has the company issued a public statement on its climate policy?

Climate Risk Governance Leading Practices Leading Practice: Climate risk is being monitored and addressed at

Climate Risk Governance Leading Practices

Leading Practice: Climate risk is being monitored and addressed at the top levels of the organization, and insurers communicate their climate risk policies publicly.

Insurers such as Grinnell Mutual, Catlin and New York Central Mutual indicate they have established committees to oversee climate risk and opportunity strategies, as well as to monitor climate impacts.

AIG, Allianz and Munich Re indicate that they have adopted public statements on their climate policies and describe those statements in some detail in their Survey responses.

“…Catlin several years ago established an Emerging Risks Committee, which is an

institutionalized process for considering the impact of climate change risks, especially weather-related risks, on the company’s business. The committee is chaired by the Group’s Chief Science Officer and includes underwriting, actuarial and enterprise risk management (ERM) representatives. An emerging risk can be defined as an issue that

could be potentially significant but which may not be fully understood in insurance

terms and could affect how the company prices its products, reserves for future claims

or allocates capital to specific business units.(Catlin)

93

Source: All “Leading Practice” examples from the Climate Risk Disclosure Survey, Reporting Year 2012.

Key Theme: Climate Risk Identification & Assessment (Survey Question #3) Describe your company’s process for

Key Theme: Climate Risk Identification & Assessment (Survey Question #3)

Describe your company’s process for identifying climate change-related risks and

assessing the degree that they could affect your business, including financial implications.

How may climate change shift customer demand for products?

What implications may climate change have on liquidity and capital needs?

How are these impacts likely to evolve over time? Does the company have plans to regularly reassess climate change related risks and its responses to those risks?

Climate Risk Identification & Assessment Leading Practices Leading Practice: Identify and assess business segments

Climate Risk Identification & Assessment Leading Practices

Leading Practice: Identify and assess business segments and products exposed to climate risks

Insurers such as Amica, Arbella, and The Hartford indicate that increased extreme weather events could have a significant impact on the property side of their business through increased weather related loses.

Others such as CNA, Ironshore and Mutual of Enumclaw note risks to casualty lines due to litigation around causation of climate change.

“The biggest risk to our business identified from climate change is the potential for significant losses in our property insurance lines of business

from an increase in the frequency and severity of adverse weather response, the company purchases a robust catastrophe reinsurance program with a well diversified roster of financially strong reinsurance companies to reduce its net exposure to severe weather events to an

acceptable level of capital.” (Arbella)

In

Source: All “Leading Practice” examples from the Climate Risk Disclosure Survey, Reporting Year 2012.

Key Theme: Climate Risk & Investments (Survey Question #5) • Has the company considered the

Key Theme: Climate Risk & Investments

(Survey Question #5)

Has the company considered the impact of climate change on its investment portfolio? Has it altered its investment strategy in response to these considerations? If so, please summarize steps you have taken.

Does the company consider regulatory, physical, litigation, and competitiveness-related climate risks, among others, when assessing investments?

Has the company considered the implications of climate change for all of its investment classes, e.g. equities, fixed income, infrastructure, real estate?

Does the insurer have a system in place to manage correlated climate risks between its underwriting and investments?

Climate Change Risk & Investments Leading Practices Leading Practices: Consider potential climate risks to

Climate Change Risk & Investments Leading Practices

Leading Practices: Consider potential climate risks to investments

across all asset classes

Life insurers such as Lincoln Financial and Prudential have noted that they screen real estate investments with respect to potential climate risks.

Nationwide and Oregon Mutual state that they actively review

climate risks to a range of asset classes, including real estate,

municipal and corporate bonds, as well as equity investments.

“For municipal bond investments, the ability of the bond issuer (i.e. municipality) to repay debt is largely influenced by the health of its local economy and stability of its population (tax) base. Climate-change issues ranging from water scarcity in the Southwest to coastal migration in Florida are considered when evaluating potential investments.” (Nationwide)

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Climate Change Risk & Investments Leading Practices Leading Practices: Institute a protocol for managing correlated

Climate Change Risk & Investments Leading Practices

Leading Practices: Institute a protocol for managing correlated risks

between underwriting and investments.

Some insurers indicated formal processes to evaluate correlations

between investments and underwriting.

W.R. Berkley has a process by which the ERM team collaborates with the Investment team to assess risks around real estate purchases.

XL Group notes that due to their property catastrophe exposures in

CA and FL, the investment group monitors investments in those

states and has strict guidelines in place around the acceptable amount of holdings from CA and FL issuers, as well as the percentage of the municipal portfolio these holdings can comprise.

Climate Risk Reporting: Interest and Opportunities • Insurers are frequently taking more action on climate

Climate Risk Reporting:

Interest and Opportunities

Insurers are frequently taking more action on climate risks than reported in the NAIC Climate Risk Disclosure Survey

Public reporting remains important for multiple (re) insurance stakeholders:

Consumers

Regulators

Investors

Regulatory oversight and assessment of (re) insurer climate risks are crucial for securing the future availability and affordability of insurance in exposed regions and locations.

Questions? Max Messervy Manager, Insurance Program Ceres messervy@ceres.org 617-247-0700 x 126 Twitter: @MaxMesservy

Questions?

Max Messervy Manager, Insurance Program Ceres messervy@ceres.org 617-247-0700 x 126

Twitter: @MaxMesservy

Panel Discussion

Moderator: Kelly Knee, RPS ASA

Panel Members

Dr. Peter Sousounis, AIR Worldwide

Dr. Louis Gritzo, FM Global

Max Messervy, Ceres

• Dr. Louis Gritzo, FM Global • Max Messervy, Ceres Environmental Business Council of New England

Environmental Business Council of New England Energy Environment Economy

EBC Climate Change Program Series, Part Three:

Insurance Industry Perspective on Risk Related to

Climate Change for Coastal New England

Program Series, Part Three: Insurance Industry Perspective on Risk Related to Climate Change for Coastal New