Lloyd’s puts secondary perils to peak status in warning on climate change
The blurring of lines between peak and secondary perils will work its way into the Lloyd’s framework as Lloyd’s overseers consider expanding the LCM5, the Lloyd’s framework covering catastrophe exposure, beyond the core five perils.
“To ensure we are on the front foot, we are considering our approach to collecting these perils separately and expanding the LCM5,” Patrick Tiernan, Lloyd’s chief of markets, said during the course of his third quarter market message.
The LCM5, including wind and earthquake in both the US and Japan as well as northern European wind, is no longer so exclusive a source of syndicate nat cat losses.
Lloyd’s has counted a 42% increase in net model losses for non-peak perils at the 1:200 return period since 2017, Tiernan told underwriters and syndicate managers.
“Our data shows that some of these regional perils have materiality to us not too far off the lowest of those peak LCM5,” Tiernan said. Rising into closer consideration: US inland flood, US severe convective storm, US wildfire and New Zealand earthquake.
Comments came part and parcel with a plea for syndicates to get ahead on their studies of how exposure and climate change are altering loss patterns. A study of Lloyd’s nat cat loss trends over 20 years showed “no compelling upward trend” in losses once data is adjusted for exposure variables including demographics, insured values and portfolio composition.
“None of this means climate change is not an issue,” Tiernan quickly warned of climate change impacts which Tiernan considers “extremely complex” by region, peril and business line. “Losses are already increasing and climate is likely to amplify.”
“If you don’t invest in understanding climate change now, then by the time we see the true impact on claims it is going to be too late.”
Tiernan has warned on the matter before. Tiernan told the Q2 market message in June that Lloyd’s oversight in property will evolve as US wildfire, severe convective storm, and flood are now “achieving the same level of materiality” as the natural catastrophes bunched into Lloyd’s LCM5 category.
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