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The Embarrassment That is the Allianz Climate Change Report

Posted by The Diatribe Guy on May 30, 2012

I am an actuary in the insurance industry, and so receive information of all sorts that are supposed to enlighten me and assist me in my job.   Whether it is a better model to use in forecasting future experience based on current trends for the purpose of pricing products, or accurate assessment of ultimate losses on current inforce products, it is imperative that I understand new advancements in predictive modeling, underlying trends, and results of different studies to most benefit my company and the customers we serve.

In this capacity, I recently came across a 97 page effort by Allianz, in partnership with – get this – the WWF (World Wide Fund for Nature), entitled “Major Tipping Points in the Earth’s Climate System and Consequences of the Insurance Sector.”   As someone who wants to base pricing considerations on observed experience and modeled trends, I was curious about this paper, and how it is implied that this is to be used by the insurance industry.   The report isn’t a new one, but it was  the first I had run across it.

The very first line of the paper reads:  “Climate change resulting from emissions of CO2 and other greenhouse gases (GHGs) is widely regarded to be the greatest environmental challenge facing the world today.”




Page one teaches us some interesting details.   I learned that there is no global agreement or scientific consensus for delineating ‘dangerous’ from ‘acceptable’ climate change, but 2 degrees Celsius seems like a good number.   The origin of that 2 degree number is not clear, but seems to be promoted based on the UNFCCC Assessment Report (AR4).


We then learn about tipping points.   The theory here is that, while temperature may increase gradually, there are points where a small change can make a big difference in the system.  The cited reference here is M. Gladwell, “The Tipping Point: How Little Things Can Make a Big Difference.”    It is unclear to me if this is a how-to book on marriage, or something spelling out the global catastrophes to come, but apparently it’s good enough for the reinsurance industry.


Well, anyway, this is just the Executive Summary, which includes examples of Tipping Points.   It appears we are talking about disasters such as effects of rise in sea levels, a shift in monsoon seasons, Amazon drought, and an overly arid Southwest U.S.   No mention of comets or alien attack, so I guess we’re sticking to “things we can control.”


There is then a touching “Take Home Message” to conclude the Executive Summary.   We learn that past emissions have already committed us to at least 0.6 degrees of further warming.   Because we’re lazy and lackluster in our efforts to combat it, the 2-3 degrees scenario is almost certain to happen.




I must say, as I read the actual body of the document, I was pretty disappointed with my reinsurance brothers and sisters.    We start with simply references to other works, clearly fed to them by WWF and other environmentalist groups.    UN studies, IPCC papers, etc. tell us there will not be a smooth transition into warmer temperatures.  This leads into the definitions and characteristics of tipping points, which – let’s be honest – insurance people will not know whether the studies they are reading are right or wrong.   They’re insurance people.  But in any case, it doesn’t appear that there was a serious attempt to reach out to alternative opinons on the matter.   Nobody called me, which can be expected.   More importantly, I don’t think Dr. Roy Spencer got a call either.   I don’t even think Jeff from the Air Vent was consulted.   A travesty.


Section 2 focuses on identifying tipping elements based on IPCC AR4.  

On a serious note, from a reinsurance standpoint, the things they are looking at need to be considered for the purpose of understanding exposure to risk.   What kind of storm activity tends to occur with changes in the ENSO amplitude?   What is the exposure in the event of differences in monsoon activity around the globe?   What are the insurance impacts to glaciers melting? What are the impacts of this event or that event?   All legitimate questions to make sure the company can sustain viability should certain things occur that impact loss payouts.   The issue I have here is putting such study in a document that doesn’t just use global warming theory as a “what if” scenario, but presents it as a given.


We then get into all sorts of scenarios around different tipping points.   It’s all the same stuff: Greenland, Arctic Ice, sea level rises, the Antarctic, carbon stores in permafrost (amplified global warming, you know), and so on.   Then, we get into tipping points that can tip other points, or something like that.


Section 3 highlights the greatest risks to our dismal future.  


So, what am I most disappointed in?   My disappointment is mainly that this is a piece of propaganda disguised as an insurance study.   If it is an insurance study, it’s a horrible one, and I’d fire anyone who resented it to me as a definitive assessment.   I see no industry experience and actual trends presented.   It is a “study” in the sense that it covers a lot of “what if” scenarios, which is an entirely legitimate exercise, but it provides them as a near certainty as opposed to a random probabilistic event.   Oh, sure, there are a lot of graphs and charts that lead one to believe that this is a rigorous study, but it is not.    It is a study that has, at its basis, a complete trust in the views and conclusions of a few UN-sponsored reports and other data that is derived in its entirety from the pro-AGW side.   It reeks of being a UN lapdog in anticipation of taking advantage of climate change scenarios and scare tactics for a lining of the pockets and future power grab.  


The study into the “what-ifs” seems pretty sound.    This part is fine, which is what I would expect from experts in the reinsurance industry, because this is what they do: they assess exposures, risks, and loss impacts GIVEN A SCENARIO IN WHICH TO ESTIMATE THAT IMPACT.     This paper, however, assumes the scenario to be reality.


So, what is my analysis on why Allianz would release an otherwise legitimate exposure analysis in the form of a drivel-packed, politically correct, report?


M.   O.   N.   E.   Y.


Suppose that Allianz convinces regulators and customers alike of the need for a “loss provision due to global warming impacts” in their policies.   Imagine tax advantages for surplus funds set aside for these events.   Now, imagine that every future weather event can be attributed to global warming…   wait…   I mean, Climate Change, so that a demonstrable drawdown on “global warming reserves” reinforces the idea of human-cause impacts on the weather and storms.   The propaganda becomes self-perpetuating, and ever more profitable.   At some point, it is likely that all weather risk can be transferred at a guaranteed margin to a global fund to cover all climate-change related events.  More conspiratorial, imagine a world of crony capitalism where those who were on the “right side” benefit disproportionately as the UN wields more power and is able to give preferential treatment to its friends with the “right” message.


This is simply Allianz seeing the future and hoping to profit from it.   And to help it along, what better than to actually promote the entire idea yourself?   All-in, so to speak.


Yeah, color me skeptical.   


I’ve got news for everyone who wants to give reinsurers the benefit of the doubt.   I’ve been in this business long enough to realize that despite all their fancy modeling and theories, they are the least rational reactionaries to risk there is.   Supposedly, this price is based on long-term history until something happens, at which time your rates quadruple.    Then, as competitors enter the market, they end up underpricing products.    So, whatever sophistication they start with, it goes out the window in a real hurry.


But I’m sure this is different.   And I’m sure they mean well.


For more fun with Allianz and climate change tipping points, check this out:

Posted in Actuarial Topics, Allianz, Business, Climate Change, Environmentalism, Global Warming, Indoctrination, Information, Peer Review, Politics, United Nations | Tagged: , , , , , , , , , , | 3 Comments »

Solar Cycle Length, Sunspot Count, and Temperature – An Insurance “Pricing” Analysis

Posted by The Diatribe Guy on October 7, 2008

Being an actuary, my profession is the butt of many bad jokes. One of my “favorites” is the one about how you can tell the difference between an actuary and an accountant. Answer: Accountants look at the other person’s shoes when they are talking to them.

I’ve always considered myself atypical in a profession known for its geekdom. But, I do have to face a certain reality. I often feign memory-loss when someone asks me what I did the previous evening. That’s because I am somewhat embarrassed to say that I spent a couple hours reading over a research paper on solar cycles, or analyzing temperature anomalies. Even I have to admit that this makes me appear to be a loser. It often gets me in a little trouble at home when the wife notes that the boys need to be roughhoused with, or tomatoes need to be canned, and she could use a little help here or there. I try to point out that I’m trying to save the planet (just not in the way others claim to be) but alas, she doesn’t buy into the importance of understanding the significance of a slowing in the sun’s rotation at different latitudes.

Nonetheless, I press on. And not being a climatologist, but an actuary, I tend to look at the data and conjure up thoughts of how to process it utilizing my actuarial background. There are many ways that the data can be adjusted and analyzed. My interest as of late has been to try and determine a way to test the various elements of the solar cycle and see if there is some relationship to temperature that can be determined. And that is what I have done here.

In actuarialdom, one of the enigmatic things we do is price insurance products. A very simple illustration as to how that is done is to look at age and sex, for example. Suppose we have a large population of people. We decide to split out the ages into 10 groups. We have two groups relating to sex (if that needs explaining, then you must live in California). While it may seem apparent that you can just look at the results of the 20 individual cells defined by those two sets of groups, that is only true because of the simple example here. In reality, we usually have a large number of different rating parameters and the unique cells could literally be in the millions. So, we’ll proceed with this example as if each cell is not credible enough to analyze on its own.

The first thing you can do is look at the experience by age. If you have a base cost per policy, you can apply a rating factor to change the cost as your age adjustment. Then you can look at the experience by sex. If you multiply these two factors together, and then multiply by the base, you get a rate for each particular cell.

The problem with that, though, is that you are not accounting for cross-biases. In other words, if a disproportionate percentage of people in one age class are of a certain sex, then the results of your analysis are skewed. This influence must be eliminated (or at least mitigated to the extent possible). We do this through iterative procedures where the factors are continually adjusted and compared to the known results so that the resulting set of factors are essentially stripped of the other variables’ influences. That way, when the two factors are mutliplied together, it’s a true picture of the risk presented by that cell, rather than an understated or overstated picture because of undue influence of other parameters.

Why am I talking about this? Because when I think of temperature, I kind of think of it the same way as a pricing problem in insurance. A price is determined because there is an exposure, and the exposure has certain characteristics. These characteristics add or subtract dollars to the price according to the risk they present. The better we get at identifying all the appropriate risk characteristics, the more effective we are in pricing to suit the risk.

Likewise, temperature (at least in my mind) can be thought of as being comprised of a number of elements all working in concert with each other. I decided to take a look at the solar cycles, making an assumption (surely an incorrect one) that only the sun matters with regard to temperature. Consider this an initial analysis. As time and data allows, I can incorporate measures of just about anything into the spreadsheet, including measurements of Carbon Dioxide, methane, and the number of pirates seizing Ukranian warships. Adding factors will help refine the true impacts of each solar measure to temperature. In their absence, the factors are still appropriate for observing the general trend and relative magnitude, but there may well be changes to the factors with the introduction of other parameters.

All that said, let me outline the methodology here, in general terms. If anyone is interested in the more comprehensive details, I’d be happy to provide it: Read the rest of this entry »

Posted in Actuarial Topics, Climate Change, Earth, Global Warming, Science, Solar cycles, Sun, Temperature Analysis | 11 Comments »

Midwestern Actuarial Forum Presentation – Implications of Climate Change to Insurers

Posted by The Diatribe Guy on September 26, 2008

I know how jealous you all will be, but yesterday I had the pleasure of attending the Fall seminar of the Midwestern Actuarial Forum. I thought I would highlight one part of the meeting, which was a presentation by representatives from Deloitte Consulting, entitled: Changing with Climate Change: An Insurance Industry Study. This link shows that agenda item, in case you don’t believe me.

The presenters of this study were three actuaries. They are credentialed actuaries. I am sure that they are fine people and do quality work for their firm, and this is not an attempt or effort to in any way undermine their work as actuaries. I am also an actuary. I know well that I am not a climatologist, that my view of the subject is subject to ever more scrutiny than that of a climatologist, and that no matter what I do or present, there will always be a skepticism (some healthy, some simply dismissive without consideration of the presentation itself) that I cannot possibly know the full story behind temperatures and data and models because I am not a climatologist. OK, I understand that. But, in fairness, if I am so easily dismissed, then the same standard should be held up to other actuaries who start talking about climate change.

Since I can understand and appreciate that criticism, I chose instead to not go there. Instead, I was very interested in what they would actually present, and in what context.

It would be an understatement to say I was extremely disappointed with this presentation, and I honestly was embarrassed that it was presented by actuaries to actuaries. Again, I think this is NOT necessarily an actuarial issue, and so it does not speak to their abilities to evaluate reserves, price products, value companies and pensions, or do whatever else they may do in their firm. I wish there was a copy of the presentation online that I could link to so I could demonstrate my concerns. Should there be a link to the power point that goes up I will direct you to that. Read the rest of this entry »

Posted in Actuarial Topics, Climate Change, Education, Global Warming | 4 Comments »