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Climate threat : the index of the actuarial at the highest

by

Aurélia Morvan

May 28, 2019 11:30

Photo : Freepik

The five-year average of theIndex of the actuarial climate (IAC), a tool for monitoring trends in climate, reached its highest level in the fall of 2018, for Canada and the United States.

This high score demonstrates the increase in the occurrence of extreme weather events in North America.

Index record for the fall of 2018

The actuaries responsible for calculating the IAC do this by combining the seasonal data quarterly of six variables “that have the most effect on the people and the economy” : the high and low temperatures, rainfall, the duration of droughts, strong winds, as well as the level of the sea.

With these data, they were able to determine the EPC of each season since 1961. The most recent data have been disclosed in the beginning of may, and relate to the fall of 2018.

During this period, for Canada and the United States, the five-year average of the IAC has been established to 1.03. This represents ” the highest level ever reached during the study period, i.e. from January 1961 to November 2018 “, leading the committee responsible for this index, in a press release.

Source : Index to actuarial climate

A warning signal for insurers

The five-year average of the IAC has continued to grow over the past 20 years. A statement that indicates ” a growing discrepancy between the climate extremes and the level of the sea, and the historical trends provided for the two countries “, said the committee.

The Index of the actuarial climate is based on existing evidence and did “not designed to make projections,” says Yves Guérard, an actuary member of the committee of the IAC and of the board of thecanadian Institute of actuarys, in interview to the Newspaper of insurance.

However, ” the increase of the IAC being supported, it informs the insurers as to the direction in which the risks go away. This helps them to anticipate market needs, in terms of the capital needed to cover the risks and of products to be developed. The IAC is sending the message that they must prepare for a world that is more risky, ” says Mr. Guerard.

A new method of calculation

Data from the fall of 2018 have been calculated using a new method, implemented in April 2019. To overcome the instability of the geographical coverage and, therefore, bias in the data collected, the actuaries have decided to add a step in their method of calculation of the Index of the actuarial climate.

“Before you launch the calculation of the EPC, we start by eliminating by filtering the grid points which are unstable in time, which gives us a stable set of grid points for which monthly data were available for at least 90 % of the time in each decade from 1960 to today “, they explain in their press release.

All of the results published since 1961 have been revised according to this new method. However, this update has virtually had no impact on the results of the United States and has not changed the general situation observed for Canada, says the committee. Just like the old method, the new shows a tendency to the gradual increase of the IAC during the past two decades.

The IAC was launched in 2016 by four organizations representing the actuarial profession in Canada and the United States : thecanadian Institute of actuarys, theAmerican Academy of Actuaries, the Casualty Actuarial Society and the Society of Actuaries.

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