Australia: Actuaries launch quarterly climate index – Asia Insurance Review

The Actuaries Institute yesterday launched a climate index, an objective measure of extreme weather
conditions and changes to sea levels, to help policymakers and Australia’s businesses assess how the
frequency of weather extremes is changing over time.
The Australian Actuaries Climate Index, which includes a number of sub-indices, tracks changes in the
frequency of extreme high and low temperatures, heavy precipitation, dry days, strong wind and changes
in sea level, mainly concentrating on the 99th percentile of observations. The components of the index
were chosen due to their link to risk, an area of expertise for actuaries, and because extremes have the
greatest potential impact on people and, often, the largest cost to the economy.
The index is the culmination of an extensive research and implementation process. It is the result of
consultation with Australia’s Bureau of Meteorology, Commonwealth Scientific and Industrial Research
Organisation (CSIRO), leading insurance and natural hazard scientists and regulators. “The index is
designed to help us understand how extreme weather, and hence risk levels, may be shifting as a result of
climate change,” said Mr. Tim Andrews, a principal at Finity Consulting.
Mr. Andrews, who has 30 years of actuarial experience, collated the index, using data from the Bureau of
Meteorology’s extensive network of weather stations and tide gauge facilities. The data was collected
nationally and grouped into 12 climatically similar regions.
Actuaries Institute president Mr. Barry Rafe said, “Actuaries are skilled at summarising and presenting
complex data, and the assessment and management of the financial consequences of risks.” “This project
aims to help big and small corporations better understand the changes in weather extremes across
Australia. It is one way to bring science and business together.”
Actuaries Institute chief executive Elayne Grace said: “This work will assist businesses to assess and
report risks from climate change, and Australians more generally will be able to look at the data and see
what’s going on.” Australian financial institutions can reference the index to help them meet their
commitments to adopt international risk reporting measures, Ms Grace said. The Financial Stability
Board’s Taskforce on Climate-Related Financial Disclosures in 2017 wrote recommendations for a single
international cross-industry standard for disclosing those risks.
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The Australian Prudential Regulation Authority (APRA), which last year warned that the risks of climate
change were “foreseeable, material and actionable now”, has welcomed the new index. APRA executive
board member Geoff Summerhayes said, “APRA has a longstanding working relationship with the
Actuaries Institute, collaborating on financial risk metrics and standards. We believe this initiative is a
positive step towards helping regulated entities to understand and manage the potential impact of
climate risk on their businesses.”
CEO of the Investor Group on Climate Change (IGCC), Emma Herd, said: “The effects of climate change are
here and now, and getting worse.” “Australian investors are looking for the tools they need to better
assess and mitigate physical risks for their investments. The Australian Actuaries Climate Index is a
welcome new tool for managing climate risk.”
The IGCC represents Australian and New Zealand institutional investors with around A$2trn ($1.46trn)
in funds under management, and others in the investment community concerned about the impact of
climate change on investments.
First index report out on 12 Nov
The very first Australian Actuaries Climate Index report, to be issued on 12 November, and which covers
the period 1981 to 2018, shows the frequency of extreme conditions in autumn 2018 was higher than the
historical extremes for autumns in the baseline period from 1981-2010. In fact, the frequency in the
baseline period has been exceeded in every season but one since 2010.
The results are compared to a 30-year reference period, mostly focusing on the 99th percentile of
observations. The index will be updated each quarter. The Actuaries Institute plans to develop more
explicit measures of risk and the climate index represents the first phase of that work.
“This is a first step,” Ms Grace said. “We hope to build on this index by attaching risk data, such as damage
to property and health statistics, in order to understand the relationship between weather extremes and
risk, enabling more explicit risk indices to be developed.”

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