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A black swan event impacting financial markets is such a 2018 worry. Enter the green swan event that one closely watched outfit says could trigger a major financial crisis.
Ahead of the World Economic Forum this week, the Bank of International Settlements published a paper predicting climate change would trigger green swan events. Unlike the black swan event — which is a completely surprise event (see flash crash in the markets several years ago) — the green swan event could be seen a mile coming due to more severe weather changes.
“Whether you agree with this or not, such reports and views are only going to grow over time. This will be the topic of our age,” Deutsche Bank strategist Jim Reid said in a recent note to clients.
How could one not predict such an occurrence rattling markets — the number of extreme weather conditions has grown four-fold over the past 40 years.
“The good news is that we have been planning for these things for quite a while because climate change has been on the core of our agenda at Allianz for more than 10 years,” Oliver Bate, CEO of insurance giant Allianz, told Yahoo Finance in an interview at the World Economic Forum. “It’s a top risk in our risk assessment. We discuss it with our regulators. So it’s not surprising and we have been adapting our exposure, particularly to natural catastrophe events and how we deal with them for quite a while.”
That should be somewhat reassuring to Allianz shareholders and regulators globally. But despite the preparation by Allianz and others, the realities around climate change could have profound impacts to the insurance industry.
A 2018 Deloitte study said rising climate-related losses threaten the viability of insurers’ books of businesses and investment portfolios. The report makes several suggestions to insurers to mitigate the risks from climate change: raise the profile of climate risk in the portfolio; use advanced analytics to better assess risk; work with policymakers and policyholders to reduce climate risk.
Watch Yahoo Finance’s full live network coverage of the 50th Annual World Economic Forum from January 21-24 here.