Fathom and Climate Proof are proud to present an assessment of cat model adoption across the banking industry through interviews with experts from six large financial institutions.
Large G-SIBs (Global Systemically Important Banks) face growing catastrophe risk exposure as the world becomes warmer and more volatile. The traditional safety net offered by insurers is starting to buckle under the weight of extreme weather events too. In response, some are exploring catastrophe models (‘cat models’) to quantify the exposure and vulnerability of their core portfolios.
Download the white paper to get insights on:
- How banks are engaging with extreme physical risk events
- What steps are leading global institutions taking in modeling physical risk
- How new regulations are changing the dynamics within banks
- How banks are using model components to match their specific use-case.
Download the report
Why banks are waking up to cat risk
- Climate change is increasing the frequency and severity of flood events on a significant and global scale. Secondary perils such as flooding accounted for an all-time high of 92% of global natural catastrophe insured losses in 2025 (Swiss Re Sigma Report). The US alone experienced 27 billion-dollar-plus climate disasters in 2024 (NOAA).
- With insurers raising premiums in high-risk regions or pulling out all together, banks are losing the buffer that once stood between natural catastrophes and losses landing on balance sheets. The need for better data and exposure visibility is ramping up within the sector.
- Regulators, primarily in Europe and Asia, are increasing scrutiny of banks’ climate-related risk management activities, in recent cases leading to fines and penalties.
The big three challenges for banks – and their solutions
Model-risk management and black box models
Banking regulations require strict explainability and validation. The inherent complexity & subjectivity of catastrophe models often leads them to be labeled as “black boxes,” making it difficult to pass internal model risk reviews.
Fitting a square insurance peg into a round banking hole
Cat models were designed for the insurance industry focusing on annual total expected losses.
Banks have different transmission channels (e.g., collateral devaluation, business downtime and borrower creditworthiness) and operate on far longer time horizons.
Knowledge gaps and cultural barriers
Many bank stakeholders are not yet conditioned to think about spatial and temporal correlation in the same way as insurers, focusing instead on macroeconomic variables like GDP. There is a noted lack of internal expertise to understand the deep technical details of cat models.
Solution
Some banks are taking a modular, component-based approach, maintaining control over internal assumptions, calibration, and validation.
Fathom’s Global Flood Map has passed model-risk management (MRM) within a G-SIB headquartered in the US.
Solution
Leading banks are developing “translation layers” that intermediate between raw cat model data and internal credit or capital models.
Fathom holds regular expert-led banking roundtables, allowing banks to come together and discuss best practice when assessing flood risk.
Solution
Leading institutions are prioritizing capacity-building and targeted education for risk management teams.
Fathom and GARP developed the Catastrophe Modeling Masterclass, specifically designed to get financial institutions up to speed on how they can gain value from cat models.
Download the report to read first-hand insights from physical risk experts within global banks
This report explores the challenges and opportunities presented for banks using catastrophe models. Discover how your institution can overcome black box governance hurdles, satisfy strict regulatory frameworks, and accurately price risk in an increasingly unstable physical landscape.