Blind nat cat: Bermuda insurers eschew long-term climate view

Bermuda-based insurers have a risky take-it-as-it-comes approach to severe weather nat cat patterns, eschewing models that define the mid-term impact of climate change on those trends, a survey of Bermuda's insurers by the local supervisory authority  BMA suggests.

“The industry has, over the years, developed high modelling expertise for short-term nat cat events,” authors wrote of survey findings. “Nevertheless, modelling of mid to long-term physical climate risk is still under development.”

But the vast bulk of the Bermuda insurance population are overlooking the climate-driven changes underway. Neighbourhood 80% of the panel “do not yet utilise additional capabilities of vendor catastrophe models for long-term climate related risk exposure projections.”

In the place of such models, most insurers are falling back on a default solution provided by local authorities which the  BMA is quick to admit is “simplified” and overlooks geographical considerations that can vary the impact of climate change by region.

The discrepancy could be counted in the tens of billions.

For the survey panel, Hurricane is by far the largest nat cat exposure, at some $22.5 billion for baseline exposure on a 1 in 100 year event, far pacing flood, wildfire and convective storm all below $5 billion. Climate could add 20% to the figures, the  BMA noted.

“[With] Hurricane being the largest nat cat exposure for majority of P&C insurers, the projected ~21% increase in medium-term 1-in-100-year event is significant and poses a real threat of material impact to insurers, an effect that can be further compounded by increasing global inflation if not adequately measured, managed and addressed.”

The  BMA warned it intends to issue a guidance note in 2022 on risk management, governance and own risk and solvency assessment expectations and will work on introducing a disclosure regime for climate-related financial risks and potential changes to the capital regime.

Climate change is getting stronger billing as an ESG topic more broadly. The broader issue is listed as “a high priority of the industry” with a majority of companies expressing “a definitive commitment to continued risk assessment" and paying “significant attention” to planned transitions from carbon-emitting investment exposures.

Some 104 Bermuda-based insurers and insurance groups participated in the survey.

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