Responses to climate change from a reinsurers perspective Copenhagen, 22nd January 2008 Eberhard Faust, Munich Re

Overall losses (2006 values) Insured losses (2006 values) Trend insured losses Trend overall losses Loss [US$ bn] Great catastrophes Loss trends from natural hazards world wide (1950 – 2006) 2004 & 2005 hurricanes Number Temperature extremes (e.g. heat wave, drought) Storm Flood Geophysical hazards Great catastrophes Global weather catastrophes: : US$ 9bn/year : US$ 45bn/year

3 Windstorm losses in Denmark: January High susceptibility of modern societies, infrastructures and industrial technologies to natural hazards.

4 Natural Disasters in Scandinavia 1980 – 2007 (Norway, Sweden, Denmark, Finland) – Overall and insured losses Million Overall losses (2007 values) Insured losses (2007 values) Winter storm Anatol, 3-4 Dec 1999 Winter storm Gudrun/Erwin, 7-9 Jan 2005 © 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008 Denmark: 2.6bn overall 2.1bn insured Denmark: 1.1bn overall 0.76bn insured

5 Natural Disasters in Scandinavia 1980 – 2007 (Norway, Sweden, Denmark, Finland) – Percentage distribution Earthquake/Subsidence Extreme temperatures Storm Floods Number of deaths: 113Number of events: 163 Overall losses: 15,000m ** Insured losses: 6,500m ** ** 2007 values © 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008

6 Time series of mean climate parameters GLOBAL 2007 departure: +0.41°C 7th warmest on record (preliminary assessment) Source: Climatic Research Unit, University of East Anglia, 2007, extended Global average sea level Difference from Source: IPCC 4AR 2007 Northern Hemisphere snow cover Difference from Source: IPCC 4AR warmest years since 1850 (global) 8 warmest years comprise all of the 7 last years

7 Humanitys contribution to global warming Black: Observed global temperature Yellow: Simulation with climate models Red: Running mean of simulations Natural drivers (sun, volcanism) and man-made emissions (greenhouse gases, particulates) Black: Observed global temperature Light blue: Simulation with climate models Blue: Running mean of simulations Only natural drivers (sun, volcanism) Source: IPCC 4AR 2007

8 Observed climate change in Denmark Annually +1.5°C warmer today than in the 1870s Mean annual temperature Source: DMI 2007 °C Mean annual precipitation Source: DMI 2007 mm Annually 100 mm more precipitation today than in the 1870s

9 Source: DMI 2007 Observed climate change in Denmark No obvious trend in storminess over 100 years… But climate models project for the future (2080s): … project onto maximum wind driven surge heights m Wind driven surge heights Woth/von Storch 2007 Enhanced winter wind maxima over Denmark in the 2080s… HadAM3H, scenario A2 % Woth/von Storch 2007

10 Sea level rise for various emission scenarios *Basis: Range of ΔT = 1.5º-5.8ºC (IPCC TAR) A1FI B1 140 cm 50 cm Source: S. Rahmstorf (2007), Science, 315, 368 IPCC 4AR 2007: Range of mean global sea level rise ( ): 20 – 60 cm North Sea: plus 10 – 15 cm 80 cm Scenario 2050s: + 30 cm SLR + 5 cm North Sea effect + 5 cm wind driven surge (in total: +40 cm) Scenario end of 21st century: + 80 cm SLR + 10 cm North Sea effect + 30 cm wind driven surge (in total: +120 cm) Scenarios for maximum surge levels

11 Projected climate change for Denmark Winter 2080s: - increased storminess, maximum windspeeds up to 10% higher - maximum storm surge levels could be 70 – 180 cm higher (sea level rise + increased wind driven surge heights) - precipitation will increase by up to 40% - temperatures will be higher by up to 3°C Summer 2080s: - precipitation will decrease by up to 25% (particularly in northeast Jylland and Sjælland) - less rain days, extreme precipitation events could even intensify - more hot days, longer dry periods

12 Consequences for the insurance industry Underwriting/risk management Climate change requires appropriate risk management Cooperation of all parties involved required: Insured persons or entities Primary insurers Reinsurers Capital markets Governments/public authorities Risk financing Risk control Adequate technical pricing Accumulation control Substantial deductibles Liability limits Loss prevention/information of the insured Improved claims settlement Reinsurance, retrocession and risk capital Risk evaluation Use of probabilisitc nat. cat. risk models and adjustments to changing hazard situations Risk identification Impact of weather disasters on the international insurance market

13 Carbon neutrality of Munich Re Munich Re Munich: 2009 Munich Re Reinsurance worldwide: 2012 Measures : Reduction of emissions per employee Usage of "green" power electricity Investment in renewable energies and afforestation In return for remaining emissions investment in emission certificates used for climate-protection projects in emerging countries

14 Munich Res approach to climate change Strategic areas Management of assets Integration of sustainability criteria into investment strategies Examples: Investments acc. to sustainability criteria Development of a climate asset analysis tool Retail fund investing acc. Dow Jones Sustainability Transparency (CDP participation) Changed frequencies/ intensities of weather hazards in under- writing/risk management Risk assessment/ underwriting Tropical cyclones, El Niño/La Niña, … Prospective risk management Examples: Climate risk analyses of clients portfolios Holistic approach in risk models (budgets) New markets/ new products Pathway to low-carbon, hazard-adaptive economies: new business opportunities Examples: Kyoto Multi Risk Cover (delivery of carbon credits as planned) Covers for renewable and low-carbon energies/ energy efficient technology Microinsurance in developing economies

15 Munich Res approach to climate change Strategic areas: Renewable energies Offshore Windfarm near Copenhagen Source: Bundesverband WindEnergie e.V. Source: Ocean Power Delivery Ltd

16 Munich Res approach to climate change The insurance sectors role & required policy preconditions Required policy preconditions - regulatory frame (building codes, land use, prevention measures) The role of insurance industry – in partnership with society - provision of data on weather-related losses to science, political decision makers and the public - products enhancing societys hazard-adaptive capability - transparency of risks via risk measurement & risk adequate premiums => sound actions, prevention, reduced loss loads for society - products promoting societys emissions reduction goals

17 To sum up … Climate change - large global challenge, also for Denmark (sea level rise, storms, storm surge, floods …). Also provides substantial business opportunites for the insurance sector. - e.g. insurance solutions for renewable energies (off-shore wind, wave power plants, …) besides nat cat covers Insurance industrys role - societal transparency of risks - products promoting societys hazard-adaptive capability and emission reduction efforts - investment decisions due to sustainability criteria and climate sensitivity of enterprises Insurance industry aligned with societal interest - good match of the insurance industrys business model and societal & clients interest (hazard-adaptive society, emissions mitigation)

Thank you for your attention!

19 Natural Disasters in Scandinavia 1980 – costliest events in Denmark *losses in original values © 2008 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE As at January 2008

20 Munich Res approach to climate change Risk measurement / underwriting - For instance, adjustment of risk measurement to enhanced atlantic hurricane activity since the mid-1990s US Nationwide all events from historical catalogue adjusted to current warm phase activity