Transcript Actuarial Climate Risk Index

Adaptation Canada 2016
April 12 - 14, Shaw Centre, Ottawa
What role should actuaries play?
Yves Guérard, FCIA, FSA, Hon.IFoA, PhDhc
Actuaries: a global profession

Roles as individuals:
 Normative: integrity, compliance
 Dynamic: creativity, innovation

Coordinating its initiatives
 At the local level
 At the regional level
 At the international level
 Climate change: a global phenomenon with local impacts
 Adaptation to increasing longevity was gradual but climate change
is requiring a more rapid pace
2
Canadian Institute of Actuaries (CIA)
3,900 Fellow actuaries and 1,300 Associates
Since 2008, manages a project to publish the Actuaries Climate
Index jointly with three North American actuarial associations


In 2011, these associations commissioned Solterra Solutions, a
Victoria, BC environmental consulting firm, to prepare a report
dealing with the impacts of climate change (published in
November 2012)
The CIA Committee on Climate Change and Sustainability was
created in 2014


3
International Actuarial Association

The CIA is a full member of the International Actuarial
Association (IAA), which brings together 67 local associations
comprising 63,000 actuaries in 110 countries


The IAA is a supporting institution of the Principles for
Sustainable Insurance of the UN Environment Program’s Finance
Initiative
The CIA sits on the IAA’s board and takes part in its activities

4
Particularly those of the Resource and Environment Working
Group created in 2010 by the IAA to coordinate global activities
The IAA at the international level




Publicly supported the work of the Conference of Parties
(COP) 21 in Paris in 2015
Called for increased transparency in emissions disclosure to
enable investors and society to better manage the risks
caused by climate change
Offered its support for the Warsaw International Mechanism in
the areas of actuarial expertise listed in Article 8(4) of the Paris
Agreement
Is considering the possibility of building on the momentum
achieved by COP21 by providing regular monitoring, as a
neutral and credible observer, of the increase in greenhouse
gases (GHGs) within a targeted Gt CO2 budget
5
Actuaries’ special qualifications
Specialists in risk management and in the use of long-range
models combining scenarios and probabilities
 Well qualified to interpret complex models developed by
climatologists and extract the relevant information from the
mass of available scientific data
 Able to make the information
 more accessible by analyzing climate data into simpler
modules, and
 more useful by developing financial risks management
models adaptable to the continued evolution of emerging
trends
Implies a duty of reciprocal collaboration with other professions


6
Normative role of actuaries
Fulfil the responsibility of protecting the sustainability of
businesses, insurance companies, and private and public plans, as
well as the equity between the end users and the payers


But all the while taking account of new risks arising from climate
change, planet’s limited resources, and the challenge of the
transition

Anticipate the potential impact on liabilities and counterpart
assets (valuation and returns)

Explain that there is a degree of uncertainty, even in the short term,
but plan in terms of decades, not quarters

Produce the best possible estimates using the available data and
with a reasonable degree of accuracy, given the costs and
consequences
7
Individual responsibility



8
Keep apprised of the potential impact of new factors that could
affect assumptions and projections so as to always be
providing high-quality professional services
Refrain from rendering professional services in a field for which
they are not adequately qualified
Make a critical analysis of the available climate data
(Intergovernmental Panel on Climate Change (IPCC) and other
sources) and grasp the implications
 Identify impacts in his/her area of expertise
 Make sure to have the appropriate data, tools, and
methodologies at hand
Transparency and fairness
Actuaries can rely on conclusions generally accepted by the
scientific community


But must disclose any departure therefrom that is deemed
necessary or applicable at the request of their client/employer
Encourage a proactive approach by fairly reflecting reductions
in the degrees of exposure to climate risks and to
environmental constraints
Disclose in any reports or opinions whether or not they have
(already) taken these factors into account, and to what degree



9
In my opinion, this warning applies by virtue of the precautionary
principle, whether or not the actuary is personally sceptical of the
likelihood or significance of these factors
Finding the good side of risk

Actuaries have the necessary tools and competencies to




Take full advantage of the opportunities posed by new risks
presenting a complex combination of often incomplete data
involving probabilities
Assess and compare potential losses and gains over a long period
with the more immediate costs of adaptation or mitigation
Design financial packages to fund these costs and maximize the
value added of decisions based on data-driven analysis
This comparative advantage applies to the assessment of a lowcarbon strategy for the company itself or for its investment
portfolio
10
Role of the profession



A critical mass of informed and proactive professionals in the
civil society can counter procrastination and accelerate the
emergence of actionable consensus
 On major risks posed by climate change
 On the need to better manage the planet’s growth and
resources
Innovate in the development of new markets, products, and
strategies
Address the need for efficient instruments to mitigate, transfer,
and share climate risks, including insurance and other
management tools
11
Expand the horizon beyond reaction

Create plausible scenarios considering the





Global response and the manner in which each government is
meeting its commitments
Risks over and above those related to fossil fuels and to 2°C
warming
Decarbonation, energy and food equilibrium, stranded assets,
health care infrastructure, production cycles, etc.
Promote the use of strategies and policies to ensure long-term
sustainability despite castastrophic risks
Transform expenditures into investments for creating a better
performing economy


12
Consuming fewer non-renewable resources
Aiming for growth that is qualitative more than quantitative
Responsibility of the professional body




Ensure that actuaries, the public, and decision-makers in
particular are well informed about sustainability risks that
climate change entails
Adjust syllabus and professional development programs, keep
the standards, tools, and reference material up to date, and
ensure a rapid convergence towards best practices by pooling
analysis and emerging experiences
Organize research, identify macroeconomic repercussions on
investment and on society (lifestyle), difficulties, and solution
pathways
Educational mission: generosity in exchanging information and
responsibility for sharing critical analyses of potential impacts
with decison-makers and civil society
13
Why create climate indices?

Factual, credible, visual, and transparent tools to




Enrich the debate, overcome inertia or indifference
Educate actuaries, insurers, and the public
Correct the misconception that climate change is limited to warming
Neutral and built from an actuarial point of view, these indices
focus on a retrospective basis on the risks of extreme events to
demontrate


14
The complexity and variability of environmental factors
The importance and variety of climate risk impacts
Actuarial Climate Index (ACI)
Actuarial Climate Risk Index (ACRI)

ACI: impact of extreme climate events

ACRI: impact on mortality and economic losses

“Extreme” means with a frequency outside the 10th to
90th percentile interval for the 1961–1990 reference period

The ACI combines six variables:


1. High temperature
4. Low temperature

2. Heavy rainfalls
5. Long drought

3. Violent winds
6. Sea level
Demonstrate that climate change

Affects our daily lives in myriad ways

Is evolving over the short term in ways that might seem random

Cumulatively makes our planet more at risk
15
(scale: = standard deviation for the
reference period)
Frequency of extreme temperatures has
increased since the reference period
Increase in the annual frequency of hot extremes
Decline in the annual frequency of cold extremes
30-year reference period
16
Moving
average over
five years
Questions?
17