Saturday 26 May 2018

Blowing In The Wind





You would think there was enough to worry about in terms of money and monetary systems for the Bank of England to be concerned about weather forecasting.

This is not the case as this article in Bank Underground suggests. Because bad weather might mean insurance claims and very bad mean numbers of very large claims. It concludes:

Quote:

In summary, we have shown that if the last 30-years frequencies persist, the recent experience of the 2017 hurricane season is probably not an outlier but closer to the norm.

This is an important topic for insurers and others alike, and one where further research is needed to improve our collective understanding of hurricane clustering and its potential impact.

Given these trends, insurers, in particular, need to consider the operational, economic and risk management impact of the assumptions made when modelling hurricanes.

Unquote.

The "frequency" relates to a series of hurricanes in "clusters". One hurricane is bad enough but a run of them across the same wide track in the USA can devastate a whole region.

The Bank is concerned that insurance companies may not cope with the consequences. If they cannot or even fail then the costs fall elsewhere.

As what is very bad for insurance companies is bad for an economy and monetary systems. Serious dangers arise, financially, politically and even internationally.

So this summer keep an eye on the weather reports as well as what may or may not be happening in the markets or even the football.

2 comments:

  1. It's the small risk but huge impact problem. Not easy to estimate risk either because hurricane stats are not well behaved.

    ReplyDelete
  2. They’ll just have to regulate those hurricanes, that’s all.

    ReplyDelete