Baden -Baden, 20 October 2014 [600160]

Baden -Baden, 20 October 2014
Dr. Ludger Arnoldussen , Prof. Dr. Peter Höppe Relevance of changing weather patterns Image: used under license from Shutterstock.com

Geo Risks Research competence at Munich Re
40 years of expertise
1974
Foundation of Geo
Risks Research
department 1973
Munich Re’s first
global warming alert 1993
Start of
NatCatSERVICE 2007
Climate change is defined as a
strategic topic for Munich Re;
founding of the Corporate Climate
Centre (CCC) 1989
First (physical) Globe
of Natural Hazards 2000
First CD -ROM World
of Natural Hazards 2011
Nathan
Risk Suite 2005
Foundation of MCII
1880 1974 – 2014
20/10/2014 2 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe

Weather -related events on the rise worldwide
Highest increases in frequencies for flood events
Data show new trend of weather patterns: More frequent persistent weather conditions in Central Europe
Long -lasting weather conditions with precipitation can lead to river floods in one region while dry and hot weather causes
heatwaves and droughts at the same time in another region.
More and more intense convective events increase exposure to flash floods and hailstorms, which can occur everywhere
influence on probability and intensity of events and thus possible losses due to hail and floods
Risk of winter storms nearly unchanged
20/10/2014 3 Number of days (as mean value per decade in
summer) with troughs over Central Europe
Convective storms in Europe 1980 –2013
Number of events
20406080100120
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Flash flood
Tornado
Hailstorm
Severe storm
Source: Munich Re Incidence trend
of the weather
pattern “trough
over Central
Europe” as mean
value per decade
in summer,
1881 –2008
Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe Source: Sächsisches Landesamt für Umwelt, Landwirtschaft und Geologie, 2010

Examples of floods and convective
storms in Europe Weather -related events worldwide on the rise
20/10/2014 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe 4 Floods May/June 2013 (Germany, Austria, Czech
republic): overall losses €9.7bn, insured losses
€2.4bn (in Germany: €8bn/€1.8bn)
Hailstorm in southwestern Germany, July 2013:
overall losses €3.6bn, insured losses €2.8bn
Floods in UK, December 2013 – January 2014:
overall losses €1.1bn, insured losses €0.8bn
Storm Ela in Belgium, Luxembourg and western
Germany, June 2014: overall losses €2.3bn, insured
losses €1.8bn (in Germany: €880m/ €650m)
Resilience is key; state should support market solution wherever possible Image: Ina Fassbender/Corbis Image: Hagel Informationszentrum/Marco Kaschuba

Convective storms in Europe 1980 –2013

20/10/2014 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe 5 Selection of significant
loss events Loss events
*Losses in original values
Source: Munich Re Severe storms, hail, 6.8.2013
Germany
Overall losses*: €600m
Insured losses*: €450m

Hail, 27‒28.7.2013
Germany
Overall losses*: €3,600m
Insured losses*: €2,800m

Severe storms, 23‒24.7.2009
Switzerland , Austria, Germany
Overall losses*: €1,250m
Insured losses*: € 850m

Flash floods, 12‒14.11.1999
France
Overall losses*: €500m
Insured losses*: €400m
Flash floods, 15.6.2010
France
Overall losses*: €1,200m
Insured losses*: €875m
Flash floods, 2‒3.7.2011
Denmark (Copenhagen)
Overall losses*: €1,050m
Insured losses*: €640m

Hail, 12.7.1984
Germany (Munich)
Overall losses*: €1,500m
Insured losses*: €750m
Severe storm “ Hilal ”, hail,
flash floods, 28.5‒2.6.2008
Germany
Overall losses*: €1,100m
Insured losses*: €800m

Severe storm,
hailstorm, tornado
Flash flood

Detecting risks with Munich Re’s NATHAN
e.g. in motor insurance
20/10/2014 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe 6 More/stronger thunderstorms and hail also
affect fleet owners and carmakers with large
parking lots, e.g. hail in summer 2013 led to the
total loss of 80% of the cars in a French
stockyard.
Greater risk of accumulated losses increases
need for reinsurance and services to better
understand risks of individual portfolios and
improve prevention.
Example: connecting motor own insurance
portfolio with NATHAN hail intensity map to
generate individual loss forecasts for each
address

Recent hail and flood events show significant
changes in loss pattern
20/10/2014 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe 7 Severe building losses from recent hail events (e.g.
Reutlingen 2013). New materials with higher resilience
could support loss prevention.
Flooding and unprotected oil tanks: severe
contamination losses possible and probability of a total
loss is significant.
Photovoltaics and external thermal insulation, which
have experienced a boom in recent years, especially in
Germany, are exposed to weather -related loss
scenarios.
Weather -related losses in the industrial sector are a
growing concern – not only high property losses, but also
increased exposure to BI and CBI losses (contingency
plans and loss mitigation strategy are essential).
Image: picture alliance / dpa

Structure and pricing of reinsurance
programmes
tailored to winter storms and river
floods
Increasing demand for non –
proportional and cat covers
Higher amounts retained by
insurers Higher frequency of smaller nat cat losses impacts
insurance companies’ net results
20/10/2014 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe 8 Meteorological trends
Trends in RI structures
Increased frequency of weather –
related summer events:
Convective storms
(e.g. hailstorms)
Flash floods
Droughts
Local frequencies and intensities
still difficult to predict
No changes observable in respect
of winter storms. Increased
frequency of
summer
events impacts
net earnings
and volatility
of net result
Changed weather risks call for adequate risk awareness and tailor -made reinsurance protection
Primary insurance rates need to be adapted to changed weather patterns across all LoBs (e.g.
residential building and motor own damage insurance)

Every situation is different – our solutions are tailor -made
to protect insurance companies’ results
20/10/2014 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe 9 Munich Re tailors solutions to the individual client’s needs,
e.g. protection
against accumulated losses in net retention;
on a standalone basis or integrated into the
existing programme ;
on a proportional or non -proportional basis;
for one or more classes of business. Munich Re offers clients protection
against nat cat accumulation losses Awareness of changing weather trends is still
heterogeneous
Locally limited events do not affect insureds and insurers
to the same extent and at the same time .
Insured‘s net retention
Windstorm
Hail
Hail Flash flood
0 20 40 60 80 100 120
Jan
15 Feb
15 Mrz
15 Apr
15 Mai
15 Jun
15 Jul
15 Aug
15 Sep
15 Okt
15 Nov
15 Dez
15 Flash flood Highly affected primary insurer (illustrative)
Protected by proportional cover
Protected by nat cat cover Image: used under license from Shutterstock.com

Munich Re weather and commodity business:
Solutions for all weather conditions
20/10/2014 10 Fluctuating and difficult -to-predict weather conditions
are significant economic risks for many business
sectors
The acquisition of a leading provider in the market
segment completes MR’s business model for
weather risks.
The aim is to offer “one -stop” client -centered risk
management with the capability of combining
weather with commodities.
This is achieved by designing volumetric hedging
instruments that help to reduce the risks of adverse
weather conditions, also in combination with market –
price risks where required (high -frequency, low –
impact occurrences).
*This is the sum notional value of all instruments reported on the PWC survey + CME volume . The full weather market may be up to twice as large.
Source: Bulletin of the American Meteorological Society (J.A. Dutton 2002, J.K. Lazo et al 2011), PWC 2011 Weather Risk Derivative Survey
Munich Re offers holistic solutions for future
weather risk management
Highly affected primary insurer (illustrative)
$5.7 trillion $485 billion >$12 billion*
Portion of US GDP
that is “weather –
sensitive” Typical annual
variance in US
GDP due to
weather (3.4%) Weather variability
explicitly hedged
with weather
instruments
(worldwide) Image: Getty Images/ Thinkstock

0 500 1000 1500 2000 2500 2007 2013 2018
Hail
Multi -peril
Agricultural insurance through PPP protects farmers against
climatic risks – in Europe, we are on the way
20/10/2014 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe 11 In Europe, multi -peril insurance is on the rise:
Increased severity and frequency of loss events is
expected due to climate change.
Farmers need comprehensive covers to stabilise
investment in production.
New 2015 EU common agriculture policy supports
implementation of PPPs: insurance coverage beyond
hail-only, including drought/floods/excess rain.
Multi -peril cover is only sustainable in a PPP:
A sustainable PPP approach enables risk sharing
through premium co -financing with co -financing of
cat losses Munich Re reinsures major PPP systems worldwide
and also supports PPP development in Europe
Specialised crop insurers in Europe have to stick
to actuarially sound underwriting as well as lobbying
for PPP
Agriculture insurance premiums in Europe ( €m) Image: Getty Images/Flickr RF

Summary
Trend of weather patterns with more frequent persistent weather conditions and higher convective
potential in Central Europe changes the probability and intensity of weather events. Thus also possible
change in losses, with higher volatility of claims costs
Increased frequency of summer events impacts net earnings and volatility of net results
Changed patterns in weather risk call for adequate risk perception. Better understanding of risks and
detection of accumulations are necessary, as well as detailed analysis of sites
Tailor -made reinsurance protection needed, e.g. for accumulated losses in net retention
Innovative insurance solutions , e.g. for
significant economic risks triggered by fluctuating and difficult -to-predict weather conditions
agricultural insurance through PPP to protect farmers against weather risks
20/10/2014 12 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe “We all grumble about the weather, but –but–but nothing is done about it.”
Mark Twain

This presentation contains forward -looking statements that are based on current assumptions
and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and
other factors could lead to material differences between the forward -looking statements given
here and the actual development, in particular the results, financial situation and performance
of our Company. The Company assumes no liability to update these forward -looking
statements or to conform them to future events or developments.
20/10/2014 13 Relevance of changing weather patterns / Dr. Ludger Arnoldussen, Prof. Dr. Peter Höppe

Dr. Ludger Arnoldussen , Prof. Dr. Peter Höppe Thank you very much
for your attention © 2014 Münchener Rückversicherungs -Gesellschaft © 2014 Munich Reinsurance Company Image: used under license from Shutterstock.com