Analysis of New Models of Emerging Risk for Insurance Companies: The Climate Risk

Abstract

This work aims to conduct an analysis of the techniques for assessing and managing emerging risks that impact the insurance sector and to investigate issues related to climate change. The investigation took into account the regulatory obligations that arise for the Company to determine the pricing of the products and the underwriting policies for the risk considered and the alignment with the sector regulations. To this end, the open source software Climada based on stochastic forecasting models for volatility, such as the ARCH, GARCH and ARIMA models, was examined.

Empirically, on the basis of real data obtained during an internship at E&Y, it has been determined that these models can represent a valid support for insurance companies for the so-called extreme risks for the purposes of their exposure and solvency.

Keywords: Climate Risk, Forecasting, GARCH, ARCH, ARIMA

JEL Classification: Q54, D81, G32