Responses to climate change from a reinsurers perspective Copenhagen, 22nd January 2008 Eberhard Faust, Munich Re.

Responses to climate change from a reinsurer’s perspective

Copenhagen, 22nd January 2008

Eberhard Faust, Munich Re

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0

50

100

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1950 1960 1970 1980 1990 2000

Overall losses (2006 values)

Insured losses (2006 values)

Trend insured losses

Trend overall losses

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$ b

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Great catastrophes

Loss trends from natural hazards world wide (1950 – 2006)

2004 & 2005

hurricanes

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8

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1950 1960 1970 1980 1990 2000

Nu

mb

er

Temperature extremes (e.g. heat wave, drought)

Storm

Flood

Geophysical hazards

Great catastrophes

Global weather catastrophes:

1977-1986: US$ 9bn/year

1997-2006: US$ 45bn/year

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Windstorm losses in Denmark: January 2005

- High susceptibility of modern societies, infrastructures and industrial technologies to natural hazards.

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1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Natural Disasters in Scandinavia 1980 – 2007(Norway, Sweden, Denmark, Finland) – Overall and insured losses

Mil

lio

n €

Overall losses (2007 values)

Insured losses (2007 values) Winter storm Anatol, 3-4 Dec 1999

Winter stormGudrun/Erwin, 7-9 Jan 2005

© 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008

Denmark:€ 2.6bn overall€ 2.1bn insured

Denmark:€ 1.1bn overall€ 0.76bn insured

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Natural Disasters in Scandinavia 1980 – 2007(Norway, Sweden, Denmark, Finland) – Percentage distribution

Earthquake/Subsidence

Extreme temperatures

Storm

Floods

Number of deaths: 113Number of events: 163

Overall losses: 15,000m €** Insured losses: 6,500m €**

** 2007 values

© 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008

1%

59%17%

23%

0%

76%

4%

20%

80%

5%

0%15% 0%

95%

5%

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Time series of mean climate parameters

GLOBAL2007 departure: +0.41°C 7th warmest on record (preliminary assessment)

Source: Climatic Research Unit, University of East Anglia, 2007,extended

Global average sea levelDifference from 1961-1990Source: IPCC 4AR 2007

Northern Hemisphere snow coverDifference from 1961-1990Source: IPCC 4AR 2007

1. 1998 0.52

2. 2005 0.48

3. 2002 0.46

4. 2003 0.46

5. 2004 0.43

6. 2006 0.42

7. 2007 0.41

8. 2001 0.40

9. 1997 0.36

10. 1995 0.28

10 warmest years since 1850 (global)

8 warmest years comprise all of the 7 last years

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Humanity‘s contribution to global warming

Black: Observed global temperatureYellow: Simulation with climate modelsRed: Running mean of simulations

Natural drivers (sun, volcanism)and man-made emissions (greenhouse gases, particulates)

Black: Observed global temperature Light blue: Simulation with climate modelsBlue: Running mean of simulations

Only natural drivers (sun, volcanism)

Source: IPCC 4AR 2007

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Observed climate change in Denmark

Annually +1.5°C warmer today

than in the 1870s

Mean annual temperature1873 - 2006

Source: DMI 2007

°C

Mean annual precipitation1874 - 2006

Source: DMI 2007

mm

Annually 100 mm more precipitation today

than in the 1870s

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Source: DMI 2007

Observed climate change in Denmark

No obvious trend in storminess over 100 years…

But climate models project for the future (2080s):

… project onto maximum wind driven surge heights

m

Wind driven surge heights

Woth/von Storch 2007

Enhanced winter wind maxima over Denmark in the 2080s…

HadAM3H, scenario A2

%

Woth/von Storch 2007

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Sea level rise for various emission scenarios

*Basis: Range of ΔT = 1.5º-5.8ºC (IPCC TAR)

A1FI

B1

140 cm

50 cm

Source: S. Rahmstorf (2007), Science, 315, 368

IPCC 4AR 2007:Range of mean global sea level rise (2081-2099): 20 – 60 cmNorth Sea: plus 10 – 15 cm

80 cm

Scenario 2050s:+ 30 cm SLR + 5 cm North Sea effect + 5 cm wind driven surge (in total: +40 cm)

Scenario end of 21st century:+ 80 cm SLR + 10 cm North Sea effect + 30 cm wind driven surge(in total: +120 cm)

Scenarios for maximum surge levels

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Projected climate change for Denmark

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

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Consequences for the insurance industryUnderwriting/risk management

Climate change requires appropriate risk management

Cooperation of all parties involved required:

Insured persons or entities

Primary insurers

Reinsurers

Capital markets

Governments/public authorities

Risk financingRisk control

Adequate technical pricing

Accumulation control

Substantial deductibles

Liability limits

Loss prevention/information of the insured

Improved claims settlement

Reinsurance, retrocession and risk capital

Risk evaluation

Use of probabilisitc nat. cat. risk models and

adjustments to changing hazard situations

Risk identification

Impact of weather disasters on the

international insurance market

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Carbon neutrality of Munich Re

Munich Re Munich: 2009Munich 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

14 Munich Re’s approach to climate changeStrategic areas

Management of assets

Integration of sustainability criteria into investment strategies

Examples:

• Investments acc. to sustainability criteria

• Development of a climate asset analysis tool

• Retail fund investing acc. Dow Jones Sustainability

• Transparency (CDP participation)

Changed frequencies/ intensities of weather hazards in under-writing/risk management

Risk assessment/ underwriting

• Tropical cyclones, El Niño/La Niña, …

• Prospective risk management

Examples:

• Climate risk analyses of clients’ portfolios

• Holistic approach in risk models (budgets)

New markets/new products

Pathway to low-carbon, hazard-adaptive economies: new business opportunities

Examples:

• Kyoto Multi Risk Cover (delivery of carbon credits as planned)

• Covers for renewable and low-carbon energies/ energy efficient technology

• Microinsurance in developing economies

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Munich Re’s approach to climate change

Strategic areas: Renewable energies

Offshore Windfarm near Copenhagen

Source: Bundesverband WindEnergie e.V.

Source: Ocean Power Delivery Ltd

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Munich Re’s approach to climate change

The insurance sector’s role & required policy preconditions

Required policy preconditions

- regulatory frame (building codes, land use, prevention measures)

The role of insurance industry – in partnership with society

- provision of data on weather-related losses to science, political decision makers and the public

- products enhancing society’s hazard-adaptive capability

- transparency of risks via risk measurement & risk adequate premiums=> sound actions, prevention, reduced loss loads for society

- products promoting society’s emissions reduction goals

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To sum up …

Climate change

- large global challenge, also for Denmark (sea level rise, storms, storm surge, floods …). Also provides substantial business opportunites for the insurance sector.

- e.g. insurance solutions for renewable energies (off-shore wind, wave power plants, …) besides nat cat covers

Insurance industry’s role

- societal transparency of risks

- products promoting society’s hazard-adaptive capability and emission reduction efforts

- 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!

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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

Natural Disasters in Scandinavia 1980 – 200710 costliest events in Denmark

*losses in original values

© 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008

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Munich Re’s approach to climate change

Risk measurement / underwriting

- For instance, adjustment of risk measurement to enhanced atlantic hurricane

activity since the mid-1990s

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Return Period

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US Nationwide

all events from historical catalogue

adjusted to current warm phase activity