Assessing Physical Climate Risks in Corporate Portfolio Management: Quantitative Financial Modelling Approaches

This thesis investigates the integration of quantitative financial modelling approaches to assess physical climate risks in corporate portfolio management, focusing on the development and refinement of innovative risk metrics within Munich Re’s Location Risk Intelligence platform. Drawing on both academic theory and professional practice, the thesis first explores the birth and the evolution of risk management in the insurance sector, with a particular emphasis on reinsurance and the specialty of catastrophe insurance as developed by Munich Re. It outlines the complexities of insurance company administration, actuarial activities, and financial risk modelling, spotlighting the challenges posed by the physical impacts of climate change on tangible corporate assets. At the core of the research lies the creation and validation of a methodology for estimating corporate financial exposure to physical climate risks improving the financial risk management capabilities of companies (notably via the EBITDA Loss metric). The findings demonstrate how integrating climate risk analytics with traditional financial modelling not only supports more informed portfolio management and insurance underwriting but also enables investors and companies to better understand the financial implications of climate changing. The thesis concludes by reflecting on the practical and analytical skills gained during the internship, advocating for broader adoption of climate-adjusted risk metrics in both corporate strategy and financial markets as part of the transition toward a more sustainable global economy.