The impact of climate change on global natural catastrophe insured losses.

I was sent some modeling a few years ago by someone doing a loss ratio walk from one year to the next on a property cat book. They took the loss ratio for the previous year, adjusted for rate change, adjusted for inflation, and then they did something else which you don’t normally see, they added a 3% load to cover the effects of ‘climate change’. It must have sat lodged in the back of my brain somewhere, because when last year on a different project, I saw someone else had made a similar adjustment and this time applied 2%, the first time I'd seen it popped into my head and I thought hmm, that’s interesting, what would my pick be?

Before we build a model, let’s think what a sensible range would be? The number is almost definitely not 0, but is it 1%, 2%, 5%, 10%?

At 1%, using rule of 72, total insured losses will double solely due to climate change (on top of regular inflation) every 72 years.
At 2%, we’re looking at 36 years.
At 3%, 24 years.
At 5%, we’re looking at 14 years.
And at 10%, we’re looking at 7 years.

10% seems heavy to me, it would mean in the last 25 years or so, cat losses have roughly 10x-ed. (1.1^25 = 10.8).
Anything from 1%-5% seems to be a plausible range to me.

Let’s see if we can build a model on top of the same Swiss Re data [1] we analysed in the last post, link to that post is here:
​www.lewiswalsh.net/blog/swiss-re-and-a-300bn-loss

TL;DR, based on the below analysis, I could generate a plausible range of 3-5% additional loading being required in relation to climate change. 
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Source: A pretty gnarly photo of the bobcat fire in Sep 2020, CA wildfire is definitely a region and peril in which climate change appears to be having an effect. @Eddiem360  https://upload.wikimedia.org/wikipedia/commons/c/c1/Bobcat_Fire%2C_Los_Angeles%2C_San_Gabriel_Mountains.jpg

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