Climate Research and Reinsurance*

Abstract

Extreme weather events produce some of the most deadly and costly natural disasters and are a major concern of the catastrophe reinsurance industry. For example, in 1992 Hurricane Andrew caused over $20 billion (in 2002 U.S. dollars) in insured losses, the largest loss on record due to a natural disaster. In addition, 26 of the top 30 insured losses were produced by extreme weather events, mainly landfalling hurricanes and typhoons and European windstorms. A better understanding of how extreme events vary with climate would benefit the reinsurance industry and society. The Risk Prediction Initiative hosted a workshop on Weather Extremes and Atmospheric Oscillations that examined how extreme meteorological events of interest to the reinsurance industry are influenced by the quasi-biennial oscillation (QBO), the Arctic Oscillation (AO), and the Madden–Julian oscillation (MJO). Workshop participants concluded that the stratosphere is much more relevant to predictions that aid the reinsurance industry than is generally recognized and that there is mutual interest in fostering research on the relationship between the stratospheric circulation and extreme weather events. A preliminary science–business research agenda, based on presentations and discussions during and after the workshop, highlights four areas of mutual interest to scientists and insurers. The research areas focus mainly on understanding how the QBO, AO, and MJO influence the frequency and intensity of extreme events, with particular emphasis on tropical cyclones and European windstorms. An awareness of how the catastrophe reinsurance industry operates provides insights into why specific research areas were chosen. For example, the reinsurance industry operates on the basis of annual contracts, most of which are renewed on 1 January. Thus, although skillful forecasts at any lead are of interest, skillful forecasts of extreme events are of greatest value when made in the final quarter of a calendar year.