Academics call on re/insurers to abandon cat models relying on historical data: Convergence 2020

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A panel of academics at ILS Bermuda’s Convergence 2020 conference has slammed the re/insurance industry’s catastrophe prediction models as not fit for purpose.

Cat models that use historical inputs are based on “short and incomplete” data that would be misleading, even if the data were comprehensive, because of the impact of climate change, said Professor Kerry Emanuel, professor of atmospheric science at the Massachusetts Institute of Technology.

Speaking on a panel titled The Effects of Climate Change on Wind, Flood & the Earthquake Zombie Hypothesis, that was chaired by Samantha Medlock, a senior counsel who sits on the Climate Crisis Select Committee for the US House of Representatives, Emanuel argued that climate data was only reliable going back as far as the 1970s.

Investors hunting uncorrelated alternative asset classes, ILS likely to benefit

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Investors of the world are increasingly expecting a widespread downturn in the equity markets, leading to search for new sources of alternative return, particularly asset classes that are less correlated with broader financial trends, says Preqin.

The Preqin investor outlook for alternative asset classes in the first-half of 2019 states that now as many as 61% of institutions believe equity markets have reached, or neared, a peak at the start of the year.

The proportion of investors believing that has steadily been on the rise, Preqin say, with sentiment for a market correction rising.

This is having an effect on how institutional investors allocate to alternative asset classes, the alternative investment data provider says, with factors such as diversification, hedging, and the overall lack of correlation all rising in importance.

“The roles that alternative assets perform for investors are becoming more pivotal in the face of a potential downturn,” Preqin explains.

Shah: Data-driven cat bond can be replicated

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Moving away from using traditional actuarial science and making risk more transparent could help to securitise more forms of insurance risk, said Ledger Capital Markets CEO Samir Shah.

The firm data scientists, as opposed to actuaries, to provide analysis of a $10mn private cat bond it did recently which was invested in by AlphaCat Managers.

The deal, covering non-standard passenger auto insurance, was announced in late January.

Auto bonds have been done before but not for this line of business. Generali did a liability motor ILS deal in 2016 while Axa did a series of Sparc auto profit securitisations before the financial crisis.