According to a new working paper by catastrophe modelling specialist Reask and specialist insurance-linked securities investment manager LGT ILS Partners, a climate-conditioned Industry Loss Warranty (ILW) strategy can materially outperform traditional static modeling approaches.
The firms conducted a systematic back-test of a climate-conditioned strategy across a portfolio of 36 regional ILWs, spanning a 40-year period from 1985 to 2024.
“Catastrophe models used across insurance, reinsurance, and capital markets are built around long-term stationary climatologies. They treat historical averages as a reliable guide to current and future risk,” Ian Bolliger, Principal Quantitative Engineer at Reask explained in the published case study.
FULL ORIGINAL PUBLICATION HERE