Climate models

Aeolus Capital Management on the importance of climate models: Interview


For our latest Artemis Live video interview, we explored the importance of climate risk models in managing reinsurance and insurance-related securities (ILS) portfolios, with senior executives from Aeolus Capital Management.

Aeolus Capital Management Ltd. is an investment fund manager specializing in reinsurance and retrocession that largely targets exposure to real estate catastrophes in its underwriting.

As a result, climate risk and climate change are key considerations for the business and, as we all know, these are currently hot topics of discussion within the insurance-related securities investor community (ILS ).

So I was joined by Aeolus Director of Research, Dr Pete Dailey, and Associate and Director of Analysis Frank Fischer, who discussed the importance of climate models in their work and how these tools are improving.

We also explored how Aeolus leverages climate modeling, data and analysis to inform the construction and management of its portfolio, asking Dailey and Fischer how they view the use of climate inputs in ILS decision making. evolve over time.

The consideration of factors linked to climate change in the way in which the risks linked to reinsurance are modeled, assessed and selected for the portfolios, is deeply integrated in the processes followed by Aeolus.

It is also essential to explain how climate is factored into decision-making, when it comes to having conversations with ILS investors, explained Dailey and Fischer.

Dr Dailey explained the importance of climate models in Aeolus’ research, saying: “It is becoming more and more critical every day. Not a day goes by when I don’t see an article, or an exchange with a colleague, on the subject of climate change.

“The insurance and reinsurance industry is truly at the forefront of understanding the risks associated with climate change. This is not new to us, climate analysis has been a fundamental part of risk management for more than twenty years that I have worked in the industry.

“It becomes an additional layer on top of what we already understand and what we are trying to optimize, as part of a holistic approach to risk management.

“We consider the past and the future, but above all we consider the present and how the current climate regime may affect risk in the year and years to come.”

Fischer explained the importance of incorporating climate information into the selection and management of Aeolus’ portfolio, as well as into the conversations the company has with investors.

“Climate change is at the center of our concerns. There is no conversation that we have when the topic is not brought up, ”said Fischer.

In developing this, “We need to spend a lot of time educating our investors about this and providing them with the data and research needed to properly value the asset class.

“Our job is to give them all this information and try to get, as much as possible, a real perspective of the risk so that they can make good decisions.

“Ultimately, our job is to inform our investors. These are ultimately our partners and our research and investment in models is going to be a key part of their decision-making process.

“In any industry ours is no different, we have to constantly challenge our assumptions and try to improve the product. So obviously the impact of climate is at the forefront and a key area of ​​research. “

The full video interview is embedded below and can also be viewed in its entirety, along with previous Artemis Live video interviews, on our YouTube channel.

You can also listen to our interviews in audio in by subscribing to the Artemis Live podcast here.

All our Artemis Live video interviews focus on reinsurance, ILS and risk transfer efficiency and are accessible directly from our youtube channel.

You can also listen to these interviews in audio in by subscribing to the Artemis Live podcast here.

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