What Extreme Weather Events Are Doing to Global Insurance Markets

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, do you know what day it is? It's a very special day.

Joe Weisenthal (0:19)

Like, literally the day? What do you just tell me?

Tracy Alloway (0:22)

It's November 30th. Okay, do you know what November 30th is?

Joe Weisenthal (0:27)

Go on.

Tracy Alloway (0:28)

By the time this episode comes out, it will not be November 30th, but we are recording it at the end of the month. And it is the end of hurricane season.

Joe Weisenthal (0:37)

Oh, I didn't realize. So this is officially when the season comes to an end.

Tracy Alloway (0:42)

That's right. It starts on June 1st and it ends at the end of November.

And it has been an unusual season for hurricanes. I think it was really quiet right through August. And I actually tweeted something about this, so maybe I jinxed it. But then in September, we had a whole bunch of hurricanes, I think four major ones, including Hurricane Ian, which was the deadliest hurricane to hit the US in two decades.

Joe Weisenthal (1:09)

Yeah, this is always kind of, I mean, it's kind of random. It's interesting, because I think of Florida as being like in Hurricane Alley or right there. But it hadn't actually been hit by a hurricane in a long time, but this was a really big one. I'm seeing something that at least over $50 billion in damage.

And then beyond hurricanes, and we'll talk about them obviously, like weather and extreme weather events seems to come up a lot for us in terms of things we talk about, climate risk, drought, the heat of rivers and lakes. Weather seems to be popping up a lot, but we haven't actually really talked about that as a consistent thing.

Tracy Alloway (1:47)

No, so we had this erratic hurricane season, but we also had major droughts around the world. As you mentioned, there was a drought even in the Northeast in places like Connecticut, which is kind of unusual.

Major extreme weather events seem to be happening more often. And this kind of begs the question of how the financial industry is thinking about this, because of course there is a lot of money that is related to things like the weather.

Joe Weisenthal (2:15)

Right, and so we think of, obviously when there is a major hurricane with people's homes and infrastructure being destroyed, there's sort of a straightforward insurance, reinsurance cost associated with that.

And then of course, all these other things that create business disruptions of various sorts, again, going back to the drought, we recently talked about affecting the corn market on the Mississippi River. And so yes, financial implications abound from unpredictable variations in the weather.

Tracy Alloway (2:47)

Absolutely, and today I am very pleased to say we are going to be discussing something that we've been meaning to for a long time, which is how the insurance industry is basically handling extreme weather events and what the implications of extreme weather events are for the vast ecosystem of insurance-linked securities and products and reinsurance. There's this whole massive pool of money that is basically set up for these events, but it feels like we don't talk about it often enough. So we're going to rectify that today with someone who talks about it all the time. We're going to be speaking with Steve Evans. He is of course the owner of Artemis, which is a publication covering the insurance-linked securities market, and he is also the owner of Reinsurance News. So really the perfect person.

Joe Weisenthal (3:38)

The perfect guest.

Tracy Alloway (3:38)

Yep. All right, Steve, thank you so much for coming on Odd Lots.

Steve Evans (3:42)

Thank you, Tracy. Thank you, Joe. It's a pleasure to be here, and I've been looking forward to being one of the perfect guests.

As an avid listener.

Joe Weisenthal (3:51)

Thank you.

Tracy Alloway (3:53)

So maybe just to begin with, can you talk about like, from your perspective, from the insurance industry's perspective, does it seem like extreme weather is becoming more of an issue? Is this a topic that is cropping up more for you?

Steve Evans (4:11)

Absolutely. It's an area that's cropping up even more these days. I mean, extreme weather has been something that the insurance industry has provided capital to support for hundreds of years now. I mean, it's one of the major risks that the marine insurance market covered when you were heading off across the Atlantic to go and gather your commodities from overseas. You'd want to make sure that your boat was going to make it back in one piece, and storms were one of the things that you wanted financial protection against. So the insurance industry has been in this space forever, really, since the industry began.