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Responses to climate change from a reinsurer’s perspective Eberhard Faust, Munich Re Copenhagen, 22nd January 2008 Loss trends from natural hazards world wide (1950 – 2006) 2 200 Overall losses (2006 values) Insured losses (2006 values) Loss [US$ bn] 150 2004 & 2005 hurricanes Trend overall losses Trend insured losses 100 Global weather catastrophes: Great catastrophes 1977-1986: US$ 9bn/year 50 1997-2006: US$ 45bn/year 0 1950 16 1970 1980 1990 2000 1980 1990 2000 Storm Flood Temperature extremes (e.g. heat wave, drought) Geophysical hazards 12 Number 1960 8 Great catastrophes 4 0 1950 1960 1970 Windstorm losses in Denmark: January 2005 3 - High susceptibility of modern societies, infrastructures and industrial technologies to natural hazards. Natural Disasters in Scandinavia 1980 – 2007 (Norway, Sweden, Denmark, Finland) – Overall and insured losses 4500 Overall losses (2007 values) 4000 Insured losses (2007 values) 4 Winter storm Gudrun/Erwin, 7-9 Jan 2005 Winter storm Anatol, 3-4 Dec 1999 Million € 3500 3000 2500 2000 Denmark: € 2.6bn overall € 2.1bn insured 1500 1000 Denmark: € 1.1bn overall € 0.76bn insured 500 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 © 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008 Natural Disasters in Scandinavia 1980 – 2007 (Norway, Sweden, Denmark, Finland) – Percentage distribution Number of events: 163 5 Number of deaths: 113 0% 1% 20% 23% Earthquake/Subsidence 59% Storm Floods Extreme temperatures 4% 17% 76% Overall losses: 15,000m €** 15% Insured losses: 6,500m €** 0% 5% 0% 5% ** 2007 values 80% © 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE 95% As at January 2008 Time series of mean climate parameters 6 GLOBAL 2007 departure: +0.41°C 7th warmest on record 10 warmest years since 1850 (global) 1. 1998 0.52 2. 2005 0.48 3. 2002 0.46 4. 2003 0.46 5. 2004 0.43 Global average sea level 6. 2006 0.42 Difference from 1961-1990 Source: IPCC 4AR 2007 7. 2007 0.41 8. 2001 0.40 9. 1997 0.36 10. 1995 0.28 (preliminary assessment) Source: Climatic Research Unit, University of East Anglia, 2007, extended Northern Hemisphere snow cover Difference from 1961-1990 Source: IPCC 4AR 2007 8 warmest years comprise all of the 7 last years Humanity‘s contribution to global warming 7 Black: Observed global temperature Yellow: Simulation with climate models Red: Running mean of simulations Natural drivers (sun, volcanism) and man-made emissions (greenhouse gases, particulates) Source: IPCC 4AR 2007 Black: Observed global temperature Light blue: Simulation with climate models Blue: Running mean of simulations Only natural drivers (sun, volcanism) Observed climate change in Denmark 8 °C mm Mean annual temperature 1873 - 2006 Mean annual precipitation 1874 - 2006 Source: DMI 2007 Source: DMI 2007 Annually +1.5°C warmer today than in the 1870s Annually 100 mm more precipitation today than in the 1870s Observed climate change in Denmark 9 No obvious trend in storminess over 100 years… Source: DMI 2007 But climate models project for the future (2080s): Enhanced winter wind maxima over Denmark in the 2080s… Wind driven surge heights % … project onto maximum wind driven surge heights Woth/von Storch 2007 HadAM3H, scenario A2 Woth/von Storch 2007 m Sea level rise for various emission scenarios 10 140 cm IPCC 4AR 2007: Range of mean global sea level rise (2081-2099): 20 – 60 cm North Sea: plus 10 – 15 cm A1FI 80 cm B1 Scenarios for maximum surge levels Scenario 2050s: + 30 cm SLR + 5 cm North Sea effect + 5 cm wind driven surge (in total: +40 cm) 50 cm Scenario end of 21st century: + 80 cm SLR + 10 cm North Sea effect + 30 cm wind driven surge (in total: +120 cm) *Basis: Range of ΔT = 1.5º-5.8ºC (IPCC TAR) Source: S. Rahmstorf (2007), Science, 315, 368 Projected climate change for Denmark 11 Winter 2080s: - increased storminess, maximum windspeeds up to 10% higher - maximum storm surge levels could be 70 – 180 cm higher (sea level rise + increased wind driven surge heights) - precipitation will increase by up to 40% - temperatures will be higher by up to 3°C Summer 2080s: - precipitation will decrease by up to 25% (particularly in northeast Jylland and Sjælland) - less rain days, extreme precipitation events could even intensify - more hot days, longer dry periods Consequences for the insurance industry Underwriting/risk management 12 Climate change requires appropriate risk management Risk identification Risk evaluation Impact of weather disasters on the Use of probabilisitc nat. cat. risk models and international insurance market adjustments to changing hazard situations Risk control Risk financing Adequate technical pricing Accumulation control Insured persons or entities Substantial deductibles Primary insurers Liability limits Reinsurers Loss prevention/information of the insured Capital markets Improved claims settlement Governments/public authorities Reinsurance, retrocession and risk capital Cooperation of all parties involved required: Carbon neutrality of Munich Re 13 Munich Re Munich: 2009 Munich Re Reinsurance worldwide: 2012 Measures : • Reduction of emissions per employee • Usage of "green" power electricity • Investment in renewable energies and afforestation • In return for remaining emissions investment in emission certificates used for climate-protection projects in emerging countries Munich Re’s approach to climate change Strategic areas Risk assessment/ underwriting 14 Management of assets New markets/ new products Changed frequencies/ intensities of weather hazards in underwriting/risk management Integration of sustainability criteria into investment strategies Pathway to low-carbon, hazard-adaptive economies: new business opportunities Examples: Examples: Examples: • Tropical cyclones, El Niño/La Niña, … • Investments acc. to sustainability criteria • Prospective risk management • Development of a climate asset analysis tool • Kyoto Multi Risk Cover (delivery of carbon credits as planned) • Holistic approach in risk models (budgets) • Retail fund investing acc. Dow Jones Sustainability • Climate risk analyses of clients’ portfolios • Transparency (CDP participation) • Microinsurance in developing economies • Covers for renewable and low-carbon energies/ energy efficient technology Munich Re’s approach to climate change Strategic areas: Renewable energies 15 Source: Bundesverband WindEnergie e.V. Source: Ocean Power Delivery Ltd Offshore Windfarm near Copenhagen Munich Re’s approach to climate change The insurance sector’s role & required policy preconditions The role of insurance industry – in partnership with society - products enhancing society’s hazard-adaptive capability - products promoting society’s emissions reduction goals - transparency of risks via risk measurement & risk adequate premiums => sound actions, prevention, reduced loss loads for society - provision of data on weather-related losses to science, political decision makers and the public Required policy preconditions - regulatory frame (building codes, land use, prevention measures) 16 To sum up … 17 Climate change - large global challenge, also for Denmark (sea level rise, storms, storm surge, floods …). Also provides substantial business opportunites for the insurance sector. Insurance industry’s role - products promoting society’s hazard-adaptive capability and emission reduction efforts - e.g. insurance solutions for renewable energies (off-shore wind, wave power plants, …) besides nat cat covers - societal transparency of risks - investment decisions due to sustainability criteria and climate sensitivity of enterprises Insurance industry aligned with societal interest - good match of the insurance industry’s business model and societal & clients’ interest (hazard-adaptive society, emissions mitigation) Thank you for your attention! Natural Disasters in Scandinavia 1980 – 2007 10 costliest events in Denmark 19 Date Country/Region Event Fatalities Overall Insured losses (Mio. €*) 3.-4.12.1999 Denmark Winter storm Anatol 7 2,600 2,100 8.-9.1.2005 Denmark Winter storm Erwin 4 1,100 760 15.5.-31.7.1992 Denmark Drought 0 680 0 24.-25.11.1981 Denmark Winter storm, storm surge 9 290 130 25.-26.1.1990 Denmark Winter storm Daria 0 90 45 13.-14.1.1993 Denmark Winter storm Verena 0 90 40 18.01.1983 Denmark Winter storm 2 70 55 29.-30.1.2000 Denmark Winter storm Kerstin 0 65 40 12.-15.1.1984 Denmark Winter storm 0 50 0 25.-27.2.1990 Denmark Winter storm Vivian 0 45 30 *losses in original values © 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008 Munich Re’s approach to climate change Risk measurement / underwriting 20 - For instance, adjustment of risk measurement to enhanced atlantic hurricane activity since the mid-1990s US nationwide 500 US Nationwide 450 400 adjusted to current warm phase activity Loss [US$ bn.] 350 300 WKP Reihe2 Reihe3 Reihe4 250 200 150 100 all events from historical catalogue 50 1 10 100 Return Period 1.000 10.000