Climate and Catastrophe Risk
Definition
Climate and catastrophe risk modelling estimates the financial consequences of natural hazards and of the transition to a lower-carbon economy. Catastrophe modelling addresses present-day event risk through hazard, vulnerability, exposure and financial modules. Climate risk modelling extends the horizon and introduces scenario dependence on emissions and policy pathways.
The two are related but not interchangeable: a catastrophe model calibrated to recent decades embeds the climate of that period, not of the projection horizon.
Why it matters
- Physical risk affects claims, reinsurance cost, asset values and the viability of writing business in particular regions.
- Transition risk affects credit quality, collateral values and investment portfolios on a horizon that overlaps normal business planning.
- Affordability and availability of cover have become policy questions as well as commercial ones.
Professional focus of Jonas Osman
- Distinguishing what is genuinely modelled from what is assumed in climate-adjusted outputs.
- Geospatial exposure quality, which typically dominates hazard-model refinement in its effect on results.
- Tail estimation where the historical record is short relative to the return periods of interest.
- Translating scenario output into decisions on pricing, limits, reinsurance and asset allocation.
Key methodologies
- Hazard–vulnerability–exposure–financial structure. The standard four-module catastrophe model architecture, with uncertainty entering at every stage.
- Stochastic event sets. Simulated event catalogues extending beyond the historical record to support return-period estimates.
- Damage functions. Relationships between hazard intensity and loss ratio by construction, occupancy and protection level.
- Climate scenario analysis. Physical and transition pathways applied to portfolios over multi-decade horizons.
- Extreme-value methods. Tail fitting where the events of interest are rarer than the observation period.
Practical management applications
- Catastrophe load in technical pricing and its regional differentiation.
- Reinsurance purchase decisions informed by modelled occurrence and aggregate exceedance curves.
- Capital requirements and stress testing for physical-risk concentrations.
- Credit and investment assessment under transition scenarios.
- Resilience and adaptation analysis where risk reduction is more effective than risk transfer.
Governance and limitations
- Catastrophe model results vary materially between vendors for the same portfolio; multi-model comparison is a control, not a luxury.
- Secondary uncertainty is often larger than the difference between model versions and should be reported.
- Climate scenarios are conditional pathways, not forecasts, and their probability is not specified.
- Non-modelled perils and secondary perils remain a significant residual exposure.