Moody’s RMS’ Rahnama: 2020-2030 nat cat losses to nudge ~$2trn

Losses from natural catastrophes are expected to total $1.5trn-$2trn in the decade to 2030, according to Moody’s RMS, with chief risk modelling officer and executive VP of models and data Mohsen Rahnama asserting that frequency and severity will continue to “increase substantially”.

Speaking to The Insurer TV at the Monte Carlo Rendez-Vous earlier this month, Rahnama said climate change is the biggest driver of the rising loss tally, and questioned whether the industry is “prepared to take these kinds of losses”.

“If you step back and look at the last eight months, we have had a significant number of losses – more than $64bn. And those losses have come from severe convective storms, hail and tornado. On top of that, we had Hurricane Idalia, US and Canada wildfires, extreme flooding in parts of Europe and New Zealand, extreme heat in the US and other countries.

“These are all extensively contributing to the losses, and so the industry has to ask, is it prepared to respond to this increase in the frequency and severity of these costly events?” Rahnama continued.

As a risk modeller, Rahnama said it’s become more important than ever to provide the industry with information that can help provide a clearer idea of what to expect in the future.

“To do this exercise, I look at the losses by decade. For the three years in this decade, the combined losses of insurers are $430bn. That number is higher than all the losses that happened in the ’90s. If I look forward to the end of the decade, what am I getting? $1.5trn-$2trn of loss. That is massive. So we really need to understand nat cat risk in a very systematic way,” he said.

NA hurricane season and cyber

As of mid-September, the North Atlantic basin had produced 14 named storms, five hurricanes and three major hurricanes.

This already meets the criteria for the year to be considered at least an average season per the National Oceanographic and Atmospheric Administration 1991-2020 Climate Normals, with over two and a half months of the season to go.

Commenting on the current North Atlantic hurricane season, Rahnama said there were competing and opposing influences at play – primarily the El Niño-Southern Oscillation and sea surface temperatures in the tropical North Atlantic.

“Sea level temperature is quite powerful in a hurricane. This is a fuel to the energy of a hurricane. So, these two are really competing with each other – El Niño and sea surface temperatures. And the latter is directly related to climate change. And it seems to me, right now, that sea surface temperatures have dominated and it's September,” he explained.

While discussing the repercussions of El Niño in Europe, Rahnama said: “When El Niño happens, there is a different behaviour in the Atlantic and there is a different behaviour in Europe. And there might be some events. I actually have to look at the history of the data and then see what happened in the past.

“In 2005, when I mentioned the El Niño in the US – that was a mild El Niño. But today is a strong El Niño. The behaviour of that one is completely different, as you see. It's most likely why you see the extreme heat here. What would be happening next winter, would be actually subjected to further evaluation.”

Moody’s RMS has also been investing in its cyber modelling capabilities, with Rahnama citing cyber as the “number one” risk.

“We have to really start looking at the accumulation of the risk. If I have power outages, at a larger scale, as a result of cyber in the northeast, or Europe or the UK, a blackout, it might have massive consequences around every sector. So, cyber is dynamic and technology is changing and also the actors are adjusting accordingly.

“So, what do you need to do? You need to really have a system to be able to address that. A stochastic model can help to really start to understand the tail of the event and we had the opportunity to work with many of our clients and are working with them very closely and engaging with them on cyber modelling.

“Our cyber model right now is on version seven and with every version, we are enhancing the technology and reflecting the new opportunity to clients to adjust their own view of the risk, based on the information they have,” he concluded.

Watch the 14-minute interview with Moody’s RMS’ Mohsen Rahnama to hear more on: