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Catastrophe modelling & climate change report

A thematic review seeking to determine good practice and set new requirements

Lloyd’s Portfolio Risk Management team has undertaken a series of thematic reviews exploring the completeness and appropriateness of syndicates’ catastrophe view of risk. These reports are a vital part of Lloyd’s commitment to the market, to ensure a sustainable and high-performing market as we face new challenges and an evolving risk environment.

The latest report is now available and assesses managing agents’ approaches towards representing current climate conditions in natural catastrophe models, while seeking to determine good practice and set new requirements. Twelve managing agents with a range of natural catastrophe risk exposures were selected for participation in the review, which engaged numerous stakeholders including heads of exposure management and research analysts.

This review is important for Lloyd’s and the market, as climate change has been high on social, political, and regulatory agendas for several years. Given this backdrop, and with a global spotlight on world leaders at COP 26 in Glasgow, it was appropriate for Lloyd’s to take stock of progress made so far and consider what more should be done.

In summary, our conclusions have led to three requirements. Firstly, boards must explicitly reference and discuss climate change in board discussion of view of risk. Secondly, explicit reference to climate change must be made in validation of climate-related perils. Finally, managing agents must develop a framework to address potential current and future climate impacts on their natural catastrophe-exposed portfolio by region-peril.

"We believe these requirements are not only achievable, but they will also progress discussion on the challenging topic of climate change, allowing Lloyd’s to lead the market and enable sustainable, profitable underwriting".
Kirsten Mitchell-Wallace
Director of Portfolio Risk Management, Lloyd’s