Issues Paper on Climate Change Risks
to the Insurance Sector

July 2018

Issues Paper on Climate Change Risks to the Insurance Sector

About the Sustainable Insurance Forum (SIF)
The Sustainable Insurance Forum (SIF) is a network of leading insurance supervisors andregulators working together to strengthen their understanding of, and responses tosustainability issues for the business of insurance. Launched in December 2016, the SIF
serves as a global platform for international collaboration by insurance regulators andsupervisors on sustainability issues. The SIF is convened by UN Environment.
More information on the SIF is available at: www.sustainableinsuranceforum.org.
About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions. The
mission of the IAIS is to promote effective and globally consistent supervision of theinsurance industry in order to develop and maintain fair, safe and stable insurance markets
for the benefit and protection of policyholders and to contribute to global financial stability.
Established in 1994, the IAIS is the international standard setting body responsible fordeveloping principles, standards and other supporting material for the supervision of theinsurance sector and assisting in their implementation. The IAIS also provides a forum forMembers to share their experiences and understanding of insurance supervision andinsurance markets.
The IAIS coordinates its work with other international financial policymakers andassociations of supervisors or regulators, and assists in shaping financial systems globally.
In particular, the IAIS is a member of the Financial Stability Board (FSB), member of theStandards Advisory Council of the International Accounting Standards Board (IASB), andpartner in the Access to Insurance Initiative (A2ii). In recognition of its collective expertise,
the IAIS also is routinely called upon by the G20 leaders and other international standard
setting bodies for input on insurance issues as well as on issues related to the regulationand supervision of the global financial sector.
Issue Papers provide background on particular topics, describe current practices, actual
examples or case studies pertaining to a particular topic and/or identify related regulatory andsupervisory issues and challenges. Issues Papers are primarily descriptive and not meant tocreate expectations on how supervisors should implement supervisory material. Issues
Papers often form part of the preparatory work for developing standards and may containrecommendations for future work by the IAIS.

Issues Paper on Climate Change Risks to the Insurance Sector
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International Association of Insurance Supervisors c/o Bank for International Settlements
CH-4002 Basel
Switzerland
Tel: +41 61 280 8090
Fax: +41 61 280 9151
www.iaisweb.org

This document is available on the IAIS website (www.iaisweb.org).
© International Association of Insurance Supervisors (IAIS), 2018.
All rights reserved. Brief excerpts may be reproduced or translated provided the source isstated.

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Contents
Acronyms .............................................................................................................................. 7
1

Introduction .................................................................................................................... 92

The Climate Risk Landscape ....................................................................................... 11
2.1

3

4

Examples of Climate Impacts ................................................................................ 11

How Climate Change may affect the Insurance Sector ................................................ 14
3.1

Understanding Climate Risks ................................................................................ 14

3.2

Examples of Climate Risks across Insurance Business, Strategy, and Operations 17

3.2.1

Underwriting Activities.................................................................................... 18

3.2.2

Investment Activities ...................................................................................... 20

Industry responses to climate risks .............................................................................. 22
4.1

Observed industry practices.................................................................................. 22

4.2

Strategies for climate resilience ............................................................................ 23

5

Relevance for Insurance Supervisors........................................................................... 25

6

Applicability of Insurance Core Principles to Climate Change ...................................... 29
6.1

7Supervisory Approaches to Climate Change Risks ...................................................... 36
7.1

Assessing Climate Change as an Emerging Risk ................................................. 36

7.1.1

Mandates and Objectives .............................................................................. 36

7.1.2

Initial Assessment .......................................................................................... 37

7.1.3

Signalling Expectations .................................................................................. 37

7.2

Responding to Climate Change risks through Supervisory Practice ...................... 37

7.2.1

Risk Frameworks ........................................................................................... 37

7.2.2

Information and Data gathering ...................................................................... 38

7.2.3

Engagement strategies and Examination Tools ............................................. 38

7.2.4

Examining current exposures: Stress Testing & Exposure Assessment ......... 39

7.2.5

Exploring future risk: Scenario Analysis & Alignment ..................................... 41

7.3

8

ICPs of relevance to climate change risks............................................................. 29

Collaboration and Cooperation.............................................................................. 42

7.3.1

Convening ..................................................................................................... 42

7.3.2

Engagement with other public authorities....................................................... 43

7.3.3

International Engagement .............................................................................. 43

Observed Practices: Case Studies ............................................................................... 44
8.1

Australia: Australian Prudential Regulation Authority ............................................ 44

8.1.1

Motivation and Rationale ............................................................................... 44

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8.1.2

Approach and Methodology ........................................................................... 45

8.1.3

Key Findings .................................................................................................. 45

8.1.4

Lessons: Key Challenges and areas for improvement ................................... 45

8.1.5

Impacts on Supervisory Practice .................................................................... 46

8.1.6

Next Steps ..................................................................................................... 46

8.2

Brazil: Superintendência de Seguros Privados (SUSEP) ...................................... 47

8.2.1

Motivation and rationale ................................................................................. 47

8.2.2

Approach(es) and Methodology(ies) .............................................................. 47

8.2.3

Key Findings .................................................................................................. 47

8.2.4

Lessons: Key challenges, areas for improvement .......................................... 48

8.2.5

Impacts on supervisory practice ..................................................................... 48

8.2.6

Next steps...................................................................................................... 48

8.3

France: Autorité de Contrôle Prudentiel et de Résolution (ACPR)......................... 48

8.3.1

Motivation and Rationale ............................................................................... 48

8.3.2

Approach and Methodology ........................................................................... 49

8.3.3

Key Findings .................................................................................................. 50

8.3.4

Lessons: Key Challenges and areas for improvement ................................... 51

8.3.5

Impacts on Supervisory Practice .................................................................... 52

8.3.6

Next Steps ..................................................................................................... 53

8.4

Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS) ..................................... 53

8.4.1

Approach and Methodology ........................................................................... 53

8.4.2

Key Findings .................................................................................................. 53

8.4.3

Lessons: Key Challenges and Areas for Improvement ................................... 53

8.4.4

Next Steps ..................................................................................................... 54

8.5

Netherlands: De Nederlandsche Bank (DNB) ....................................................... 54

8.5.1

Motivation and Rationale ............................................................................... 54

8.5.2

Approach and Methodology ........................................................................... 54

8.5.3

Key Findings .................................................................................................. 56

8.5.4

Lessons: Key Challenges and areas for improvement ................................... 57

8.5.5

Impacts on Supervisory Practice .................................................................... 58

8.5.6

Next Steps ..................................................................................................... 58

8.6

Sweden: Finansinspektionen ................................................................................ 58

8.6.1

Motivation and Rationale ............................................................................... 58

8.6.2

Approach and Methodology ........................................................................... 59

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8.6.3

Key Findings .................................................................................................. 59

8.6.4

Lessons: Key Challenges and Areas for Improvement ................................... 60

8.6.5

Impacts on Supervisory Practice .................................................................... 60

8.6.6

Next Steps ..................................................................................................... 60

8.7

8.7.1

Motivation and Rationale ............................................................................... 60

8.7.2

Approach and Methodology ........................................................................... 61

8.7.3

Key Findings .................................................................................................. 62

8.7.4

Lessons: Key Challenges and areas for improvement ................................... 62

8.7.5

Impacts on Supervisory Practice .................................................................... 62

8.7.6

Next Steps ..................................................................................................... 63

8.8

USA: National Association of Insurance Commissioners (NAIC) ........................... 63

8.8.1

Motivation and Rationale ............................................................................... 63

8.8.2

Approach and Methodology ........................................................................... 64

8.8.3

Key Findings .................................................................................................. 64

8.8.4

Lessons: Key Challenges and areas for improvement ................................... 64

8.8.5

Impacts on Supervisory Practice .................................................................... 64

8.8.6

Next Steps ..................................................................................................... 65

8.9

USA – California: California Department of Insurance........................................... 65

8.9.1

Motivation and Rationale ............................................................................... 65

8.9.2

Approach and Methodology ........................................................................... 65

8.9.3

Key Findings .................................................................................................. 66

8.9.4

Lessons: Key Challenges and areas for improvement ................................... 67

8.9.5

Impacts on Supervisory Practice .................................................................... 67

8.9.6

Next Steps ..................................................................................................... 68

8.10

9

UK: Bank of England Prudential Regulation Authority ........................................... 60

USA - Washington State: Office of the Insurance Commissioner (OIC)................. 68

8.10.1

Motivation and Rationale ............................................................................... 68

8.10.2

Approach and Methodology ........................................................................... 68

8.10.3

Key Findings .................................................................................................. 69

8.10.4

Lessons: Key Challenges and areas for improvement ................................... 69

8.10.5

Impacts on Supervisory Practice .................................................................... 70

8.10.6

Next Steps ..................................................................................................... 70

Conclusions ................................................................................................................. 71

Annex: Recommendations of the FSB TCFD ...................................................................... 73
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Acronyms
ACAPS

Autorité de Contrôle des Assurances et de la Prévoyance Sociale (Morocco)

ACPR

Autorité de Contrôle Prudentiel et de Résolution (France)

ASSAL

Asociación de Supervisores de Seguros de América Latina

APRA

Australian Prudential Regulation Authority

BIS

Bank for International Settlements

BNDES

Brazilian Development BankBoE

Bank of England

CDI

California Department of Insurance

CVM

Brazilian Securities Commission

COP

Conference of the Parties

CRCI

Climate Risk Carbon Initiative

DEFRA

Department for Environment, Food and Rural Affairs (UK)DNB

De Nederlandsche Bank (Netherlands)

ERM

Enterprise Risk Management

ESG

Environment, Social and GovernanceFI

Finansinspektionen (Sweden)

FSB

Financial Stability Board

GFSG

Green Finance Study Group

GHG

Greenhouse Gas

IAISInternational Association of Insurance Supervisors

ICP

Insurance Core Principle

IADB

Inter-American Development Bank

IMF

International Monetary Fund

IPCC

Intergovernmental Panel on Climate Change

IVASS

Istituto per la Vigilanza Sulle Assicurazioni (Italy)

NAIC

National Association of Insurance Commissioners (US)OIC

Washington State Office of the Insurance Commissioner

ORSA

Own Risk Solvency Assessment

OSFI

Office of the Superintendent of Financial Institutions (Canada)

PPM

Parts Per Million

PPP

Public-Private Partnerships

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PRA

Bank of England Prudential Regulation Authority

PSI

Principles for Sustainable Insurance

SIF

Sustainable Insurance Forum

SME

Small and medium enterprises

SUSEP

Superintendência de Seguros Privados (Brazil)

TCFD

Task Force on Climate-related Financial Disclosures

UNFCCC

United Nations Framework Convention on Climate Change

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1Introduction

1.
Climate change – the warming of the world’s climate system, including its atmosphere,
oceans, and land surfaces – is advancing around the world. Climate change is recognised by
the world’s governments, the private sector, and civil society as a top global threat, which ishaving impacts today on human, environmental, and economic systems – including, forinstance, through an increasing frequency and severity of natural catastrophes and extreme
weather events. Society’s responses to climate change – including new policies, market
dynamics, technological innovation, and social change – may have wide-ranging impacts on
the structure and function of the global economy.
2.
In recent years, there has been increasing recognition at the international level thatclimate change will also affect the financial system, including insurers.
•

In 2015, the world’s governments signed the Paris Agreement on Climate Change atthe 21st Conference of the Parties (COP) of the United Nations Framework Convention
on Climate Change (UNFCCC), which sets the pathway for the reductions ofGreenhouse Gas (GHG) emissions to limit climate change to two degrees of warmingby the end of the century. Article 2.1(c) of the Paris Agreement specifically sets out agoal of “making finance flows consistent with a pathway towards low greenhouse gas
emissions and climate-resilient development.” 1 Since 2015, several new initiatives
have been launched to harness the expertise of the insurance industry to address
climate challenges.

•

In 2015, following a request from G20 Finance Ministers, the Financial Stability Board(FSB) launched an industry-led Task Force on Climate-related Financial Disclosures(TCFD). The TCFD released its final recommendations in June 2017, setting a
coherent framework for the identification, assessment, management and disclosure ofclimate risks and opportunities across sectors, with specific guidance for application
by financial institutions – including insurers as both underwriters and asset owners.

•

In 2016, under its G20 Presidency, China established the Green Finance Study Group(GFSG) to develop options on how to enhance the ability of the financial system tomobilise private capital for green investment. 2 At the 2016 Hangzhou Summit, G20
heads of state for the first time recognised the need to “scale up green finance” andendorsed a set of options to achieve this goal—with information elements, such as
product standards, established as a core aspect of frameworks to promote thedevelopment of markets for green assets (such as green bonds).

•

In 2017, under the German G20 Presidency, the GFSG concentrated its efforts on theinformation agenda with two specific research tracks on Environmental Risk
Assessment and Data.

•

In March, 2018, the European Commission presented its Action Plan on Sustainable
Finance, 3 underlining the importance of involving the finance industry in addressing
climate change and specifically involving both the European supervisory authority forinsurance EIOPA as well as national supervisors in follow up actions.

3.
Since 2015, an increasing number of governments, central banks, regulators andfinancial sector stakeholders are working to drive climate risks and other sustainability factors
into the core of the financial system function, through different measures and actions. 4,5, 6
Action on climate change is also a core aspect of many national-level policy processes relating
to sustainable finance. Several countries, including Argentina, China, Indonesia, Italy,
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Mongolia, Morocco, Nigeria, Singapore, South Africa, and most recently Canada, haveundertaken or initiated strategic policy processes and roadmaps for sustainable finance, withclimate risks often a central priority. 7
4.
These and other developments have prompted insurance supervisors to begin
examining the relevance of climate change for insurance supervision, both individually andcollaboratively through the Sustainable Insurance Forum (SIF).
5.
The SIF was launched in December 2016 as a global platform for international
collaboration by insurance regulators and supervisors on sustainability issues, with a special
focus on climate change. 8 During 2017, the SIF undertook several joint activities relating toclimate risks, including:•

Delivery of a coordinated submission to the TCFD consultation, followed by the releaseof a joint statement in July 2017 supporting the recommendations and highlighting how
supervisors can support uptake. 9•

A survey of supervisors to share knowledge and compare experience from their efforts
to address climate risks. The survey covers activities across firm-level supervision andsystem-level stress testing, examining approaches, methodologies, data inputs, key
challenges, impacts on practice, and next steps.

•

High-level policy engagement with the IAIS on climate risk issues, setting the
groundwork for collaboration with the Executive Committee and IAIS Secretariat into
2018.

6.
At the second meeting of the SIF in July 2017, members requested the SIF Secretariat
to develop a guidance document on climate change and insurance supervision. At the third
meeting of the SIF, held alongside the IAIS annual meetings and conference in Kuala Lumpur,
Malaysia, the SIF and the IAIS agreed to advance this document jointly as an Issues Paper.
7.
The objectives of this Issues Paper are to raise awareness for insurers and supervisorsof the challenges presented by climate change, including current and contemplated
supervisory approaches for addressing these risks.
8.
As an Issues Paper, it provides an overview of how climate change is currently
affecting and may affect the insurance sector now and in the future, provides examples ofcurrent material risks and impacts across underwriting and investment activities, anddescribes how these risks and impacts may be of relevance for the supervision and regulationof the sector. It explores potential and contemplated supervisory responses, and reviews
observed practices in different jurisdictions. In doing so, it identifies gaps and emerging areas
which need to be resolved to allow for effective supervision. Finally, the paper offers
preliminary insights from practice, and initial conclusions relating to the supervision of climatechange risks to the insurance sector.
9.
The Paper is intended to be primarily descriptive and is not meant to create supervisory
expectations. Nevertheless, the Paper may shed light on the need for additional, more specificjoint material from the IAIS and the SIF to support supervisors in their efforts to better
understand and address climate change risks.

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2

The Climate Risk Landscape10.
Warming of the climate system is unequivocal, with recent climate changes causingwidespread impacts on human and natural systems. 10 The scientific link between increasing
carbon emissions and warming temperatures is irrefutable. The Intergovernmental Panel on
Climate Change (IPCC) has declared that human influence on the climate system is clear, andrecent anthropogenic emissions of greenhouse gases have driven atmosphericconcentrations to their highest levels in human history: 11•

Concentrations of CO2 have increased by over 40% from approximately 280PPM toover 400PPM since the preindustrial period, accompanied by an approx.1-degree
Celsius rise in global annual mean temperature. 12•

Over the last decade, most emissions have come from energy, industry, and transport
sectors, with other major emitting sectors including agriculture and land use. 13•

While some evidence suggests that global emissions growth has plateaued since2014, 2016 was the first full year in which atmospheric CO2 concentration stayed
above the 400PPM milestone. 14,15

11.
Each of the last three decades have been successively warmer at the Earth’s surface
than any preceding decade since 1850 (Figure 1). Most warming has occurred in the past 35
years, with 16 of the 17 warmest years on record occurring since 2001. 16 2017 was the second
warmest year on record since 1880, and the warmest without an El Nino event. 17
Figure 1: Tracking Global Warming, 1850-2014

Source: IPCC AR5 SPM 2014

2.1

Examples of Climate Impacts

12.
Climate change is having widespread effects on environmental systems, andexacerbating negative impacts upon stocks and flows of natural capital, upon which society
and the economy rely. Key indicators of this shift include:•

Natural Catastrophes and Extreme Weather Events: As documented by the IPCC,
there is strong scientific evidence to suggest that climate change is having an influenceon the frequency, severity, and distribution of natural catastrophes and extreme

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•

•

•

weather events. In recent years, several notable studies have explored this question
in detail:o Research by the World Meteorological Organization has concluded that 80%
of natural disasters between 2005 and 2015 were in some way climaterelated; 18
o A recent meta-analysis of 59 studies in English-language scientific journals
published between 2016-2017 found that 70% of studies concluded thatclimate change has increased the risk of a given extreme event, such as heat,drought, rainfall, wildfires, and storms; 19o Analysis by MunichRe has identified a long-term trend in an increase in thenumber of natural catastrophes around the globe, predominantly attributable toweather-related events like storms and floods. 20 As there has been no relevant
increase in geophysical events such as earthquakes, tsunamis, and volcanic
eruptions, there is some justification in assuming that changes in theatmosphere, and global warming in particular, play a relevant role.
There is debate within the scientific community on the possibility to accurately attribute
specific natural catastrophe events to climate change. Certain types of events – suchas extreme heat, flooding, or wildfire – can be more clearly linked with increased
temperatures, as confirmed by the IPCC. 21 There is some evidence to suggest that theprobability of very high impact events, such as tropical cyclones, is closely correlatedwith temperature increases – with one recent study estimating that the proportion of
Category 4 and 5 hurricanes has increased at a rate of approx. 25–30 % per °C of
global warming. 22 Similarly, there is evidence that major cyclones are migrating“polewards” into increasingly densely populated areas (ie New York City) as a resultof climate change. 23 However, there is still a high degree of uncertainty regarding thecurrent and future impacts of climate change of specific natural perils in specificgeographic areas. While scientifically-durable methods to attribute the impact ofclimate change on natural disasters are increasing in sophistication, 24 multiple
methodological and data issues remain. 25 Nonetheless, there is a broad understandingthat climate trends are likely to on balance result in more frequent natural disasters –which has been recognised as a critical threat to economic growth by major institutions
such as the International Monetary Fund (IMF). 26
Sea Level Rise: Recent sea level rise projections range from 0.2 meters to 2.0 metersby 2100. 27 Arctic sea ice is now declining at a rate of 13.3 percent per decade, with thelast 10 years consecutively representing the lowest 10 average September ice extents
since 1979. 28 Although only 2 percent of the world’s land lies at or below 10 meters ofelevation, these areas contain 10 percent of the world’s human population – meaningthat over 630 million people are directly threatened by sea level rise. 29 The impacts
are already being felt: roughly 20cm of sea-level rise since the 1950s increased
Superstorm Sandy’s ground-up surge losses by 30% in New York alone, contributing
to tens of billions of US dollars in damage. 30
Biodiversity: Climate change is exacerbating negative trends on terrestrial andmarine biodiversity. Under current trends, climate change could threaten up to 1 in 6
species with extinction. 31,32 This is especially problematic where high biodiversity value

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Page 12 of 81••supports economic activity, such as tourism. A recent study estimates that climatechange may result in 99% of the world's reefs experiencing annual bleaching in 2043. 33
Displacement: Since 2008, an average of 26.4 million people have been displaced
from their homes by natural disasters – equivalent to one person every second. 34 2016saw 24.2 million new displacements due to natural disasters, primarily storms andextreme weather events. 35
Communicable disease: Temperature rises (associated with current rates of carbon
emission) of just 2–3 degrees Celsius could increase the number of people who arevulnerable to malaria by up to 5%, representing several hundred million people. 36

13.
Going forward, climate change is set to pose mounting human and environmental costsby the end of the century – even under scenarios reflecting mitigation and adaptation efforts(Figure 2). Critically, exposure to climate risks is being predominately driven by individual andcollective social choices, which are putting people and assets in harm’s way. Analysis bysupervisors in Australia suggests that population expansion and urban development trends inhigh-risk areas “almost guarantees” that the cost of climate-related natural catastrophe eventsand associated claims will keep rising, irrespective of other factors. 37
Figure 2: Emissions Scenarios and Climate Impacts in 2100

Source: Bank of England, 2017, based on analysis by the UK Met Office and AVOID2 programme

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3

How Climate Change may affect the Insurance Sector

3.1

Understanding Climate Risks

14.

Climate factors affecting insurers can be grouped into two main categories of risks:•

Physical risks, arising from increased damage and losses from physical phenomena
associated with both climate trends (ie changing weather patterns, sea level rise) andevents (ie natural disasters, extreme weather). It is important to recognise that insurers
may be well-versed in understanding the dynamics of such extreme events, and may
able to adjust exposures through annual contract re-pricing. However, the potential forphysical climate risks may change in non-linear ways, such as a coincidence ofprevious un-correlated events, resulting in unexpectedly high claims burdens. Insured
losses from climate-related natural catastrophes reached record levels in 2017 (Box1). Beyond insured losses from physical climate damages, climate trends and shocks
can pose economic disruptions affecting insurers, the economy, and the wider financial
system. The insurance “protection gap” for weather related losses remains significant,with roughly 70% of losses uninsured (Figure 3) – resulting in significant burden on
households, businesses, and governments. At the macro-economic level, uninsured
losses from physical risks may affect resource availability and economic productivity
across sectors, the profitability of firms and individual assets, pose supply chain
disruptions, and ultimately impact insurance market demand. Uninsured losses arisingfrom physical risks may have cascading impacts across the financial system, including
on investment companies and banks. 38 Similarly, the availability of insurance – or riskof uninsurability due to high physical risk profiles – may have significant impacts on
the performance of credit and investment across the economy (including, for instance,
mortgage lending). 39

Figure 3: The Insurance Protection Gap for Weather-related losses
US$ bnUninsured losses(in 2017 values)
Insured losses(in 2017 values)
5-year moving average
uninsured losses(in 2017 values)
5-year moving average
insured losses(in 2017 values)
Inflation adjusted via
country-specific consumer
price index andconsideration of exchange
rate fluctuations between
local currency and US$.

Source: MunichRe NatCatSERVICE, 2018

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Box 1: The cost of natural disasters
Total global economic losses from natural disasters between 2005-2015 were more than
US$1.3trn, with total direct losses in the range of US$2.5trn since 2000. The series ofmajor hurricanes and other natural disasters in 2017 made it the year of highest insured
losses ever, at US$138bn. 40 Overall economic losses from natural disasters in 2017
amounted to US$340bn – the second highest annual figure ever. 83% of the losses wereconcentrated in North America – with US losses amounting for roughly 50%. 41 According
to Aon Benfield, the total economic losses from hurricanes in 2017 were nearly five times
the average of the preceding 16 years, losses from wildfire were four-times higher, andlosses from other severe storms were 60% higher. 42 In California, insured losses fromwildfires reached US$13bn, 43 stemming from damage to 21,000 homes and 2,800
businesses. 44•

Transition risks, arising from disruptions and shifts associated with the transition to a
low-carbon economy, which may affect the value of assets or the costs of doing
business for firms. Transition risks may be motivated by policy changes, market
dynamics, technological innovation, or reputational factors. Key examples of transition
risks that have been recognised by public authorities and central banks include policychanges and regulatory reforms which affect carbon-intensive sectors, including
energy, transport, and industry. Policy and regulatory measures may affect specificclasses of financial assets relevant for insurer investment (such as real estate
portfolios), in addition to those affecting capital markets as a whole (see section 3.2.2
below). Social movements and civil society activism – such as that aiming to motivate
divestment from and cessation of underwriting to the coal sector – may pose a risk ofreputational damage to firms, if appropriate risk mitigation strategies (andcommunication actions) are not implemented. Transition factors may also impact thetypes of insurance products and services demanded from firms – including where newtechnologies, products and services may disrupt conventional industrial organisation,business models, and affiliated risk cover needs. For instance, some types ofrenewable energy technologies (such as solar power) are already cheaper thanconventional generational technologies in certain markets – and recent analysis by
IRENA has suggested that renewable energy will be consistently cheaper than fossil
fuels by 2020. 45 While such changes may create opportunities for insurers, they may
also create risk – especially in the case of sudden policy changes which affect risk
profiles of insured assets, or significantly constrain market growth.

15.
In addition to the two main types of risks above, certain insurers, public authorities,
and other stakeholders have suggested that liability risks may originate from climate change,
including the physical and transition risks described above.
•

Liability risks include the risk of climate-related claims under liability policies, as well
as direct claims against insurers for failing to manage climate risks. Research by UN
Environment has found that climate-related litigation has increased significantly aroundthe world, including over action – or inaction – relating to climate mitigation andadaptation efforts. 46 Liability risks could arise from management and boards of insurers
not fully considering or responding to the impacts of climate change, or appropriate
disclosure of current and future risks (including through damages and tort litigation).
There may also be exposure to under D&O, PI, and third-party environmental liability
policies. While the debate around legal precedent in this domain is ongoing, and of aIssues Paper on Climate Change Risks to the Insurance Sector
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protracted nature, there has been a significant increase in major lawsuits being filedwith respect to climate change over the last two years, which may be of import to theevolution of the liability risk domain for insurers. Most recently, in January 2018, theCity of New York announced lawsuits against five major oil companies, seeking tocollect billions of dollars to fund municipal efforts to cope with climate impacts. 47 Legalorganisation Client Earth reports that several reinsurers have already been seeking
legal advice on their exposure to long-tail claims under commercial general liability
policies in connection with the climate litigation in the US state of California. 48
16.
Importantly, these different types of risks are relevant across underwriting andinvestment activities of insurers (Table 1).
Table 1: Potential manifestations of physical, transition, and liability risks acrossunderwriting and investment activities
Physical Risks

Underwriting

Investment- Pricing risks arising fromchanging risk profiles to insured
assets and property (non-life),changing mortality profiles anddemographic trends (life andhealth)- Risks arising from impacts ofphysical climate events and trends on
assets, firms, and sectors, affecting
profitability and cost of business,leading to impacts on financial assets
and portfolios (ie debt, equity)- Claims risk arising fromconfluenceof
unexpected
confluence of extreme events(ie multiple category 4 or 5
hurricanes)- Strategic/Market Risks arisingfrom changing market dynamics(ie uninsurability of property)
Transition Risks- Strategic/Market Risks arisingfrom contraction of market
demand in certain sectors (iecoal, oil, marine transport)- Risks arising from market, policy,
technological, and social changes,
affecting profitability and cost of
business of firms and sectors (ieenergy,industry,transport,
agriculture), leading to impacts on- Strategic/Market Risks arising financial assets and portfolios (ie debt,
frommarkettrends, equity)
technological innovation, andpolicy changes related toclimate change (ie carbon
pricing,energyefficiency
regulations), affecting products

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and services
consumers
Liability Risks

demandedby- Liability risks arising frominsurers liable on the basis of
insurance provided (ie tort or
negligence claims)- Liability risks stemming from
Directors & Officers policies- Risks arising from litigation (ie classaction) relating to the consideration ofclimatechangeininvestment
decision-making,orinadequate
disclosure of climate risks

3.2
Examples of Climate Risks across Insurance Business, Strategy, andOperations
17.
Physical and transition risks may pose different strategic, operational, and reputationalrisks to insurers across underwriting and investment business. While certain climate-related
risk factors are long-term in nature, some are already having material impacts. Key examples
include:•Underwriting Risk: As described in the previous sections, climate change is alreadyaffecting the frequency and concentration of high impact natural catastrophes aroundthe world, leading to increases in weather-related insurance claims. For instance, theLloyd´s market reports to have paid out US$5.8bn in major claims, most of which wereclimate-related. 49 The claims burden disasters in 2017 has had material financial
impacts for non-life insurers, with industry Return on Equity dropping from 11% in 2016
to -4% in 2017. 50•

Market Risk: From a pricing risk perspective, insurers’ capacity to write insurance
business may be constrained by increasing physical risks to insured property andassets, if risk-based pricing rises beyond demand elasticity and customer willingness
to pay. There is evidence that domestic property in high risk areas is being rendereduninsurable due to high exposure to physical risks, such as wildfires, storms and sea
level rise. In the United States, US$600bn of property within one mile of the coast iscovered under the National Flood Insurance Programme, much of which will not be
viable in coming decades, absent intensive adaptation investments. Market
contractions stemming from physical risks likely to further exacerbate barriers for
consumers to access insurance. Transition risks may significantly change the products
and services desired from insurers, and an inability to appropriately design products
relevant to changing needs could significantly affect market share (as well as create astrategic risk to overall business viability).

•

Investment Risk: The profitability of insurer investment portfolios may be affected if
invested in sectors or assets which may be especially at risk from either physical ortransition-related factors (see section 3.1). This could, at the extreme, constrain
insurers’ capacity to pay future claims. Clearly, the impacts of climate risks at portfolio
level will be influenced by concentration of holdings in specific firms or sectors,
diversification and hedging strategies, and the strength of efforts to actively manage
and monitor exposures. While insurers may be somewhat insulated from the effects ofIssues Paper on Climate Change Risks to the Insurance Sector
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climate factors due to investment behaviour, only a few firms are actively seeking to
explore how portfolios may be affected by climate change now and into the future.
•

Strategic Risk: Physical or transition-related climate events, trends, or scenarios may
present strategic challenges to insurers, which could inhibit or prevent an insurer fromachieving its strategic objectives. Examples may include competitiveness impacts
resulting from an inappropriate strategy relating to physical climate risk mitigation, poor
management of future plans, or failure to respond to transition factors affecting theindustry landscape.

•Operational Risk: Physical climate impacts may affect insurer’s own assets (including
property, equipment, IT systems, and human resources), leading to increased
operating costs, inhibited claims management capacity, or potentially stoppages ofoperations.

•

Reputational Risk: In recent years, insurance underwriting or investment in sectors
perceived as contributing to climate change has emerged as a civil society issue,
exemplified by social movements calling for divestment from fossil fuels and thecessation of underwriting of coal-fired power infrastructure. 51,52

18.
There is emerging consensus that climate change may have a wide range of impacts
across corporate sectors – and that climate risk factors may have important effects on thecapacities of financial firms, including insurers, to conduct business. This is most clearly
exemplified by the statements of major ratings agencies with respect to climate change risk 53- including Moody’s, which recently concluded that climate change has a net negative credit
impact on P&C and reinsurance sectors. 54
19.
While it may be difficult to reliably assess the potential future aggregate impacts ofclimate change trends on the insurance market as a whole (in part due to persistently soft
market conditions, and high policyholder surplus in some markets), 55,56 there is increasing
recognition by insurers that climate change is likely to have critical impacts on the sector.
According to the CEO of AXA, “more than four degrees Celsius of warming this century would
make the world uninsurable”. 57
20.
Clearly, climate risks may have different impacts on insurers, depending on their coreunderwriting business areas, investment allocation strategies, size, speciality, geographic
reach, and domicile. Over the long term, it is clear climate change is likely to have implications
for all types of insurers, either through risk management, risk transfer, or investment channels,or through impacts on the broader macroeconomy.
Box 2: Novel impacts of warming weather – the experience in Australia
In certain jurisdictions, climate factors are beginning to have novel impacts acrossbusiness lines – including increases in high risk behaviour. A major insurer in Australia
studying the impact of climate change on its business has come across an interesting
discovery. The insurer had pinpointed a correlation between heatwaves in Western
Sydney and an increase in alcohol consumption; leading to a spike in break-in activity
during those periods, and ultimately resulting in a higher number of homeowner insurance
claims.
3.2.1

Underwriting Activities

21.
Climate change risks may manifest in different ways across different insurance
business lines.
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22.
General insurers are most likely to have underwriting liabilities exposed to physicalrisks, and as such have greater experience in identifying, pricing, and managing such risks.
Increasing uptake of insurance cover for climate-related natural catastrophes and extreme
weather (such as domestic flood insurance) could lead to higher premium revenue over the
shorter term (as long as risks remain insurable), but could also lead to significant increases inweather-related claims. Large insurers may be insulated from the accumulation of such risks
due to annual repricing, geographical diversification, and the availability of reinsurance
capacity. However, future climate impacts may be non-linear and increasingly correlated –with multi-annual recurrence of “1-in-100” year events. Knowledge gaps and uncertainties
around climate trends in catastrophe models may create the risk of a major catastrophic event(or confluence of multiple events) not being appropriately considered in rate setting andreserving. From a business model viability perspective, general insurance providers may be
faced with a unique combination of physical and transition risks affecting demand for insurance
products and services. Such changes may create pervasive risks for specialist providers,which may be reliant on underwriting specific economic activities – like shipping. 30% of global
seaborne trade in 2016 by volume was in oil and gas, 58 a market which could contract
significantly under an aggressive low-carbon transition scenario.
23.
Life and health insurers are in many cases just beginning to explore the impacts ofclimate factors on their underwriting portfolios. The potential impacts of climate change on
mortality are becoming a priority focus for actuarial associations, who are exploring the matterin relationship to insurance, annuity and pension programmes. 59,60 Key here are heat related
health issues associated with extremes in weather events, especially where excessive heat
may compound pre-existing health conditions or vulnerabilities (eg elderly populations).
24.
Agricultural insurers, while well-versed in addressing extreme weather, may beaffected by climate risks in unexpected and non-linear ways. For instance, businesses incertain geo-climatic zones may no longer be able to grow desired crops, while rising ocean
temperatures may have significant impacts on the productivity of fish farming.
25.
Reinsurers are often deeply versed in the management of complex systemic risks
such as climate change. Due to their exposure across the insurance system and atinternational levels, reinsurers may inherently be more resilient to climate factors due togeographic diversification. However, as the severity and frequency of significant natural
disasters increases, the availability and cost of reinsurance cover for weather-related risks
may become prohibitive for smaller insurers in certain markets – potentially leading to areinsurance gap.
Box 3: Reinsurance Cover for Environmental Risks - the experience from Canada
The Canadian GI market is comprised of many small insurers and is heavily dependent on
the international reinsurance market to provide coverage for major natural catastrophes.
Total payout for weather-related claims in Canada has hovered at about Can$1bn per year
over the last decade, until 2017 when the Fort McMurray wildfire brought the total liabilities
to about Can$4.5bn. A significant amount of this was reinsured internationally, andalthough Canadian liabilities did not present an issue to large reinsurers, they were also
faced with large claims due to significant activity in the Caribbean region in 2017.
Supervisors in Canada see potential for a reinsurance gap to emerge for weather-related
losses if costs rise significantly or reinsurers stop or restrict reinsuring some of thesenatural catastrophes. The Office of the Superintendent of Financial Institutions (OSFI) has
advised direct insurers to consider whether their reinsurers’ business is concentrated in
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these areas, and if so, whether there is potential for loss of reinsurance coverage. To theextent such a risk exists, OSFI expects direct insurers to identify alternatives to ensure
they can meet their liabilities to policyholders. OSFI is undertaking a broad review of theregulatory framework for reinsurance to ensure that it remains up-to-date and appropriate.
3.2.2

Investment Activities

26.
Investment activities of insurers may be impacted by both physical and transition risks
arising from climate change, which may have a significant impact on the valuation of financial
assets. If not adequately considered across sectors, disruption to financial markets stemmingfrom climate risk could affect reserving decisions, capacity satisfy liabilities, and ultimately
impact solvency. To date, the key focus on climate change within the investment landscapehas been from a transition risk perspective – including the potential for policy changes andtechnological innovation to result in asset stranding in high-carbon sectors, such as upstream
and downstream fossil fuel sectors (oil, gas, coal) and thermal electricity generation. Researchsuggests that the implementation of a 2oC transition pathway could reduce the revenues of
the upstream fossil fuel industry globally by a cumulative US$33trn by 2040, 61 and could leadto significant macroeconomic implications for certain countries. 62 Several leading central
banks, governments, and financial industry associations are seeking to better understand how
investment portfolios may be affected by climate risks, starting with assessments of overall
capital exposure across asset classes (see section 8). In 2017, the Lloyd’s market released areport examining actual and potential examples of how stranded assets caused by societal
and technological responses to climate change could affect assets and liabilities in theinsurance and reinsurance sector. 63
27.
Some insurers may be comparatively insulated to climate-related risks in capital
markets due to allocation towards long-dated debt instruments. Moody’s has concluded thatP&C and reinsurance portfolios may be generally less exposed to climate risks due to low
asset leverage and high diversification. 64 There is evidence to suggest that the value andstability of comparatively lower-risk securities could be affected by climate factors:•

Sovereign Debt: There is increasing evidence to suggest that physical risk factors
such as extreme weather, may affect the credit ratings of sovereigns, through direct
losses to infrastructure, as well as impacts on economic activity. Standard & Poor’s
have forecasted that tropical cyclones could potentially lead to downgrades of up to
two notches in vulnerable countries. 65 In recent years, several major agencies haveidentified the role of environmental factors in contributing to the conditions leading toa credit downgrade. In a report detailing its methodology for assessing the physicalrisks of climate change to sovereign ratings, Moody’s concludes that climate change
is already exerting “some influence” on the credit ratings of sovereign nations highly
susceptible to its effects – but that near-term implications may be limited. 66 Ratings
agencies are just beginning to explore the impacts of transition risks on sovereign debt
– which could have more wide-ranging impacts across developing vs. developed
economies.

•

Municipal Debt: Ratings agencies have also highlighted the potential for climatechange to affect the credit quality of municipal bonds, resulting from “sharp, immediateand observable impacts on an issuer’s infrastructure, economy and revenue base, andenvironment”. 67•

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may have impacts on the value of real estate portfolios. In the Netherlands, by 2023,
all commercial property will be required have at least a level C energy label – or betaken out of use. Analysis by De Nederlandsche Bank (DNB) has found that 19% of
insurer investments related to commercial real estate in the Netherlands involve
collateral with lower-range energy labels (ie from D – mediocre – to G – poor) – which
could represent a potentially significant financial risk if energy efficiency is not
improved, or the assets cannot be liquidated. 68 The value of real estate portfolios may
also be affected by physical risks, if properties are located in high-risk areas.

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4

Industry responses to climate risks

4.1

Observed industry practices

28.
In its role as risk manager, risk carrier and investor, the global insurance sector plays
a cornerstone role in the management of climate-related risks and opportunities for individuals,
households, firms, other financial institutions, and public authorities. Building on three decadesof catastrophe risk modelling, risk pricing, research and underwriting, the insurance industry
offers a unique skillset in helping governments and other stakeholders, to build financial
resilience to physical risks of climate change and close the natural catastrophe protection gap.
29.
The global movement on disaster risk reduction and transfer which started in the early
2000s has resulted in a diverse landscape of public-private partnerships (PPPs) aiming to
reduce the social, economic, and fiscal impacts of physical climate risks. Governments are
increasingly making use of risk-based approaches to disaster and climate-risk management,
often with the help of the insurance sector. The risk intelligence of the insurance sector has
helped governments and public authorities evaluate the costs and benefits of ex ante vs. ex
post disaster risk financing, contributing to growing levels of public and private investments inmeasures to reduce existing and prevent new risks, such as pro-active risk financing andvarious risk transfer measures, combined with various climate adaptation efforts. 69
30.
Currently, many insurers are actively seeking to update their product offerings, risk
management processes, and governance processes relating to climate change risks,
including through using predictive methods and enhanced risk modelling. Some leading
insurers have implemented integrated frameworks to consider the impacts of environmental
hazards – including climate change – across lines of business. Other firms are actively seeking
to strengthen catastrophe models to better consider the wide-ranging impacts of climatechange on weather, natural hazards, and other phenomena. Several insurance sector
coalitions – such as the UN Principles for Sustainable Insurance (PSI), the Geneva
Association, and the Insurance Development Forum – have developed frameworks that
insurers can adopt to tackle different aspects of the climate risk challenge. A recent study by
the Geneva Association summarises key industry trends and recent developments withrespect to climate change. 70
31.
On the whole, advances in recent years suggest that certain types of insurers – suchas large diversified general insurers, and global reinsurers – may be well-positioned to play arole in managing the physical risks posed by climate change. Initial analysis by somesupervisors, including the Bank of England, has suggested firms in certain markets may bereasonably well-equipped to deal with current levels of physical risks. However, there is lessunderstanding about how the insurance sector will respond to transition risks – both in termsof risks to investment portfolios, and impacts on underwriting business models.
32.
Looking at current investment practices within insurers, several developments andissues emerge with respect to climate change. An increasing number of insurers are seeking
to consider some aspect of climate change or sustainability priorities across their investment
decision-making. However, the depth of such commitments, and impacts of actions, may varysignificantly across firms and between jurisdictions. A 2016 analysis found that nearly 60% of
the 116 insurers surveyed recognise climate risk as an issue; however two fifths of theseinsurers are taking no action to adjust their portfolios. 71 A recent survey of 80 of the world’s
largest insurers (with combined Assets under Management (AUM) of US$15trn) found that on
average, only 1% of total internal AUM are allocated to low-carbon investments. 72
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33.
Supervisors and other stakeholders have recognised a “cognitive dissonance” in how
insurers approach climate risks between underwriting and investment activities 73 – in that thesector-leading risk modelling and pricing capacities of the underwriting side of the business
are not leveraged to their full potential on the investment side. In certain cases, capitalreallocation to low-carbon or “sustainable” investments may be constrained by the lack ofappropriate investment options – creating an inability to invest in more robust climate risk
assessment capacity. Finally, the focus of the investment debate has been squarely ontransition risk issues – with only very recent attention being placed on forward-looking
assessment of physical risks. 74
34.
Looking forward, it is becoming clear that firms may face difficulty adapting to the rapid
pace of policy and regulatory change relating to sustainable investment in certain jurisdictions.
This is especially the case in the European Union, where efforts are underway to define a“taxonomy” of sustainable finance assets and instruments. 75 As this environment continues to
evolve, more research will be required in order to develop a robust view of the risk and return
performance of sustainable assets, firms, and sectors – including where companies may be
involved in a wide array of activities across an industry value chain (ie engaged in both fossil
fuel extraction and deployment of green energy innovations).
4.2

Strategies for climate resilience

35.
The complex, interrelated, non-linear, and dynamic challenges presented by climate
risks require a strategic response across business lines and levels of management withininsurers, and a degree of alignment between relevant stakeholders along the insurance value
chain. At a general level, efforts to achieve climate resilience are likely to require the following
elements:•

Coherent governance: Climate risks to be addressed at relevant levels within an
insurer, including at board level, through appropriate governance, strategic, andoperational frameworks and policies;•

Mainstreaming: Integrating climate risks across the mainstream risk management
functions and internal controls of an insurer, including for example the strengtheningof technical risk assessment capacities (ie catastrophe models) to integrate climatechange factors;•

Integrated approaches: Considering climate risks across lines of insurance businesses
and operations, including across underwriting and investment activities, to leverageinsights from both sides of the business, and create a holistic strategy considering both
assets and liabilities;•

Skill-building: Building the skills and capabilities of practitioners with respect to climate
risk issues, to ensure that they are able to utilise relevant climate-related risk
information in their everyday activities;•

Educating consumers: Taking steps to educate their customers about climate risks,raise awareness of options to help mitigate risks and build resilience, and increasetransparency on the significance of climate risks in risk-based pricing;•

Monitoring: Introducing measurement systems to ensure that efforts listed above arebeing effectively implemented across business functions, and achieving statedobjectives.

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36.
Within the financial system, there is emerging consensus on best practices foraddressing climate risks – building from initial mapping of risks, to approaches and techniques
for risk assessment and mitigation, and disclosure of risks to shareholders. The
recommendations and supplemental guidance of the FSB TCFD set a global voluntary
framework for the identification, assessment, management, and public disclosure of climaterelated risks and opportunities in mainstream financial filings.
37.
The TCFD’s recommendations are structured around four thematic areas that are coreelements of how organisations operate – governance, strategy, risk management, and metrics
and targets. The four overarching recommendations are supported by key climate-related
financial disclosures that build out the framework with information that will help investors andothers understand how reporting organisations assess climate-related issues. In addition, the
FSB TCFD highlight the importance of forward-looking assessments of risk, including scenario
analysis, as a central component of efforts by insurers and other firms incorporate the potential
effects of climate change into their planning processes and public disclosures.
38.
Please refer to the annex for a consolidated summary of the supplementary guidanceacross the main recommended disclosures for insurers as underwriters (insurers) andinvestors (asset owners).

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5

Relevance for Insurance Supervisors

39.
In recent years, there has been growing recognition by public authorities that climatechange is a material prudential issue for the financial sector – in terms of the risks it poses tofinancial assets, institutions, and markets. 76 A recent survey across the G20 has found thatmany countries have implemented policy and regulatory measures to address climate changerisks to national financial systems. 77
40.
Stemming from their responsibility to provide oversight of new and emerging risks
affecting regulated entities, insurance supervisors have a strategic interest in understanding
how climate change may affect the safety and soundness of individual insurers, and insurance
markets in aggregate. Supervisors’ roles with respect to the protection of policyholders, andmaintenance and provision of fair, equitable, and accessible insurance markets may also be
impacted by climate change (Table 2).
Table 2: Relevance of climate change for the core objectives of insurance supervisors
Core objective
Microprudential
solvency

Relevance of Climate Change
Potential for physical, transition, andliability factors to pose risks to thesafety and soundness of individual
firms, affect the viability of businessmodels, or otherwise result in
unforeseen impacts throughunderwriting, investment, market,
strategic, operational, reputational,
or other channels.

Potential Supervisory Responses
•

•

•
•

•
Access andaffordability of
insurance for
consumers,
consumerprotection, market
conduct

Potential for climate change render
assets uninsurable; transparency for
consumers on climate change
practices and strategies; delivering
enabling conditions for insurance
product development.

•

•
•
•

Supervisory engagement toassess the consideration ofclimate change as a strategic
priority.
Examining potential financial risks
arising from claims burden or
investment exposure.
Assessments of portfolio exposure
to carbon asset risk.
Undertaking survey exercises togather quantitative and qualitative
information relating to climatechange risks and strategic
responses.
Voluntary data calls, mandatory
disclosure requirements.
Supervisory engagement toassess business decisions
affecting availability of insurance
coverage.
Supporting consumer awarenessand literacy.
Engagement with otherpolicymaking bodies.
Assessment of firm conduct on
climate change issues

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Macroprudential
stability

Potential for physical, transition,
and/or liability factors to havesystemic implications for the
insurance sector, and broader
macro-economy.

•

•

•

•

Reflecting climate change factors
within event scenarios used forinto system-level stress testing.
Undertaking forward-looking
scenario analysis of underwriting
and investment businesses.
Examination of alignment of
insurance sector underwriting andinvestment activities with climate
goals.
Engagement with other financial
supervisory authorities.

41.
Supervisors have varying levels of familiarity with the current and potential future
impacts of climate change. While climate change may not appear immediately relevant to thesupervision of insurers in certain jurisdictions, the wide range of potential impacts on theeconomy, high degree of uncertainty associated with impact scale and time horizons, and thepotentially systemic and transformative nature of such factors across the industry, compels astrategic response. In this respect, climate change is similar to other newly arising complex
risks – such as cyber risk, recently examined by the BIS and the IAIS. 78
Figure 4: A transmission map from a natural disaster to financial sector losses and themacroeconomy

Source: Bank of England, 2016

42.
Importantly, direct climate impacts on the insurance sector – such as high insured oruninsured losses resulting from climate-related natural disasters – may have indirect impacts
on the rest of the financial system, with implications for supervision. Such second-order
impacts may include the performance of loans and credit to households and SMEs, theprofitability of investments, and resultant adjustments in credit risk profiles and availability ofIssues Paper on Climate Change Risks to the Insurance Sector
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investment capital (Figure 4). Most fundamentally, the potential future impacts of climatechange – which are likely to be significant across economy and society – should be of interest
to insurers, and insurers’ strategic responses and of great importance to supervisors,
regulators, and other public bodies charged with ensuring the stability of the broader economy.
Here, links are emerging between the activities of supervisors, and the responses and broader
objectives of central banks with respect to climate change. 79
43.
Supervisors should understand climate change from a core prudential perspective,
exploring how physical, transition, and liability factors may affect existing risks to firms, pose
new risks, and create influences affecting the growth and stability of insurance markets.
44.
Physical risks – such as natural disasters – may be well understood by regulated
entities, and by supervisors. However, a high degree of uncertainty around the scope,magnitude and timing of physical climate impacts can make physical risks difficult toadequately address. For supervisors, key priorities include:•

Examining how climate change may exacerbate physical risks already consideredwithin supervisory activities, including engagement and stress testing (ie considering
increasing frequency and severity of climate-related natural catastrophes);•

Exploring how physical factors may pose risks across different insurance businesses(ie life & health);•

Assessing the broader implications of physical factors for operational, strategic, andreputational risks facing insurers, including in terms of investment allocations;•

Considering how insured and uninsured losses from physical risks could have
implications for other financial institutions, such as banks and investors.

45.
Transition risks are less well understood by regulated entities, and by supervisors.
For supervisors, key priorities include:•

Developing an understanding of the channels through which transition risks could
affect underwriting and investment businesses of regulated entities. While transition
risks are often considered from an investment standpoint, certain transition factors –such as technological innovation – are also likely to affect underwriting businesses,
and the competitive landscape of insurance in the case of financial technology(“fintech”) as was reported in 2017 by the IAIS; 80•

Exploring how regulatory risks may arise from uncertainty or the efforts of governments
globally to combat climate change through, for example, setting tighter emissions
targets and/or changing subsidies and taxes;•

Examining whether or not transition risks could pose material impacts on investment
portfolios, affecting the capacity of insurers to meet underwriting liabilities, for example
by making use of stress testing tools or scenario analyses.

46.
Finally, supervisors may seek to explore the potential for climate change to pose
liability risks to insurers.
47.
At a higher level, an important priority for supervisors is to understand how climatechange affects the broader context in which insurers operate, and the range of stakeholder
relationships that are necessary to build resilience to climate risks. The issues associated withclimate change risks are complex and need to be tackled in an integrated fashion by various
parties including governments, regulators, financial sector players, other sectors, and moregenerally by society as a whole. Public authorities – starting with governments – have a critical
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role to play in developing appropriate frameworks for disaster risk management, advancing ex
ante risk reduction efforts (such as considering climate change risk factors within planning andland use decisions), and working with industry to develop appropriate risk mitigation and risk
transfer solutions. Here, insurance supervisors can play an important role in helping to ensurethat risks can be effectively managed and mitigated where possible, including encouraging
improved decision-making on the part of consumers and the creation of enabling environmentsfor private firms to conduct business.

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6Applicability of Insurance Core Principles to Climate
Change48.
The Insurance Core Principles (ICPs) set a global framework for the supervision of theinsurance sector. While they do not address specific thematic risk issues, the ICPs provide
the basis for supervisors to identify and respond to new and emerging risks facing theinsurance sector – such as those arising from climate change. In this context, the ICPs set out
a framework for supervisors to address the insurance sector with respect to climate risks,
including those already material to the insurance sector (ie natural disasters), as well as thosewith indirect impacts that may not currently be understood as material due to knowledge gaps
or high levels of uncertainty (ie transition risks). The ICPs can guide supervisory responses tothese issues, including actions to enhance visibility around the governance of climate risks
and strategies for responding to such risks, require the management of significant risks andimplementation of appropriate internal controls, and promote resilience to climate risks in an
efficient way, respecting issues of proportionality.
49.
ICPs of relevance for the supervision of climate risk in the insurance sector may
include:•ICP 7 - Corporate Governance•

ICP 8 - Risk Management and Internal Controls•

ICP 15 - Investment•

ICP 16 - Enterprise Risk Management for Solvency Purposes•

ICP 19 - Conduct of Business•

ICP 20 - Public Disclosure

These ICPs are discussed in the following section.
50.
Other ICPs may be relevant for the supervision of climate risk in the insurance sector,
or for supervisory coordination and cooperation with respect to climate change.
51.
Going forward, the IAIS may seek to reflect further on the relevance of climate change
across other ICPs, and take steps to consider how climate change may factor within ongoing
review processes of ICPs alongside other new and emerging risks.
6.1
ICPs of relevance to climate change risks
ICP 7 – Corporate Governance52.
ICP 7 requires insurers to establish and implement a corporate governance framework
which provides for sound and prudent management and oversight of the insurer’s business,
and adequately recognises and protects the interests of policyholders. Standard 7.2 sets out
the key high-level requirements relating to corporate culture, business objectives andstrategies of the insurer, which may be important with respect to gathering an accurate readingof the insurer’s strategic position with respect to climate risks. Specifically, as climate change
may present important long-term risks and challenges, insurer’s boards should consider
climate factors in its activities to monitor, review, and set business objectives and strategies(Guidance 7.2.1). Closely linked to this is the need for the consideration of appropriate
performance goals and measures to evaluate the implementation of objectives and strategies(Guidance 7.2.2), which should be able to reflect the wide range of potential impacts of climatechange on long-term performance, viability, and interests of policyholders. Finally, the Board’s
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role in setting an appropriate “tone at the top” is relevant with respect to making clear why andhow climate change presents a strategic issue for an insurer, and the values, norms andsupporting policies necessary to ensure that climate risks are appropriately considered acrossthe organisation in mainstream activities and decision-making. In addition, climate risks may
be relevant to other provisions within ICP 7 (ie guidance under Standards 7.5, 7.7, etc.),
relating to the Board’s oversight of risk controls and reporting (discussed in the sections
below).
ICP 8 – Risk Management and Internal Controls
53.
ICP 8 requires an insurer to have, as part of its overall corporate governanceframework, effective systems of risk management and internal controls, including effectivefunctions for risk management, compliance, actuarial matters and internal audit. Climate risks
may have wide ranging impacts across underwriting and investment activities of an insurer,
and as such, insurers’ risk management systems, controls, and functions must be able toidentify, assess, and account for the impacts of climate change. Key here are a) the Risk
Management Function and b) the Actuarial Function.
8.4 – Risk Management Function
54.
The Risk Management Function is expected to establish, implement, and maintainappropriate mechanisms and activities to manage risks, as set out in Guidance 8.4.4.
Functions of specific relevance in a climate change context may include mechanisms andactivities to:•assess, aggregate, monitor and help manage and otherwise address identified risks
effectively; this includes assessing the insurer’s capacity to absorb risk with due regard
to the nature, probability, duration, correlation and potential severity of risks;•establish a forward-looking assessment of the risk profile;•evaluate the internal and external risk environment on an on-going basis in order to
identify and assess potential risks as early as possible. This may include looking at
risks from different perspectives, such as by territory or by line of business;•

conduct regular stress testing and scenario analyses as defined in ICP 16.

8.5 – Actuarial Function
55.
The Actuarial Function has a range of responsibilities through which it may inform an
insurer regarding current and future impacts of new and emerging risks, as set out in Guidance
8.5.4. Many of the functions identified under this schedule may be relevant in a climate change
context, including evaluation and advisory functions relating to:•

The insurer’s insurance liabilities, including policy provisions and aggregate claim
liabilities, as well as determination of reserves for financial risks;•

Asset liability management with regards to the adequacy and the sufficiency of assets
and future revenues to cover the insurer’s obligations to policyholders and capitalrequirements;•

The insurer’s investment policies and the valuation of assets;•

An insurer’s prospective solvency position by conducting capital adequacy
assessments and stress tests under various scenarios, and measuring their relative
impact on assets, liabilities, and actual and future capital levels;

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•The adequacy and soundness of underwriting policies;•

The development, pricing and assessment of the adequacy of reinsurance
arrangements;•

Product development and design, including the terms and conditions of insurance
contracts and pricing, along with estimation of the capital required to underwrite theproduct;•

The sufficiency, accuracy and quality of data, the methods and the assumptions usedin the calculation of technical provisions;•

The research, development, validation and use of internal models for internal actuarial
or financial projections, or for solvency purposes as in the Own Risk Solvency
Assessment (ORSA) (see section on ICP 16 below).

56.
Supervisors may seek to engage with insurers on how Risk Management, Actuarial,and other functions are set up to consider climate change risks, what actions have been taken
to address such risks, and how this information is applied across the organisation, including
in investment decisions.
ICP 15 – Investment
57.
ICP 15 sets requirements for solvency purposes on the investment activities of insurers
in order to address the risks faced by insurers. Statements and guidance under this ICP clarify
that:•

Regulatory investment requirements address the security, liquidity, and diversificationof an insurer’s investment portfolio as a whole (Statement 15.3);•

Supervisors require insurers to invest in a manner that is appropriate to the nature of
insurers’ liabilities (Statement 15.4);•

Supervisors require insurers to invest only in assets whose risks they can properly
assess and manage (Statement 15.5).

58.
There is increasing evidence to suggest that climate change risks (including transition
risks) may have a range of complex and non-linear impacts on financial markets, which may
affect the value of insurer investment portfolios (see section 3.2.2 of this document). In thisrespect, many of the Statements and Guidance set out under ICP 15 may be relevant when
considering how climate risks may affect the strength of investment regulatory requirements.
59.
Transition risks arising from climate change may have impacts on the security ofinvestments (Guidance 15.3.7–14) in terms of risk of default of counterparties, and the riskthat investments will lose value. Relevant here are provisions relating to the role of credit
ratings agencies – which are now beginning to apply greater focus to the consideration ofclimate change factors in ratings decisions.
60.
If physical climate events or transition risks were to result in a significant disruption tofinancial markets, or a rapid devaluation of financial assets linked to a given firm or sector,
issues may arise if payments to policyholders or creditors are not able to be made as portfolio
values fall (Guidance 15.3.15–21).
61.
Due to its global nature and universal scope for impact across sectors, climate change
may also be relevant when assessing the diversification of insurer investment portfolios(Guidance 15.3.22–26).
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62.
Guidance relating to the assessment of investment risks (Statement 15.5) are also ofimportance in a climate change context, as certain risk factors (ie policy, technology, or
reputational risks) may be difficult to identify, measure, monitor, control and report (Guidance
15.5.1). The prospect of stranded assets – whereby significant devaluation or conversion toliabilities of financial assets result from climate-related factors – is of primary relevance whenassessing the value at risk and potential losses (Guidance 15.5.2), and the balance of risks
between underlying assets and financial investments (Guidance 15.5.3).
ICP 16 – Enterprise Risk Management (ERM) for Solvency Purposes
Climate risk as ERM factor
63.
ICP 16 sets enterprise risk management (ERM) requirements for solvency purposesthat require insurers to address all relevant and material risks. Statement 16.1 sets out
guidance for insurers’ ERM frameworks, with the need to consider underwriting risk, market
risk, credit risk, operational risk, liquidity risk, legal risk, and reputational risk. Several
supervisors have recognised that climate change is in and of itself not a unique risk factor
facing insurers – and as such is likely to have effects across these mainstream categories(See section 7.2.1 of this document).
Climate risk and ORSA
64.
Under ICP 16, the IAIS suggests that supervisors require firms to conduct ORSA or
similar process as a way to evaluate current and future risks and solvency conditions.
Integrating climate change considerations as part of ORSA guidance could be useful forsupervisors seeking to encourage self-assessment of climate factors, and thereby enhancesupervisor’s view of a firm’s capacity to withstand financial stress that may arise from new andemerging risks. Several supervisors have expressed their intention to utilising the ORSA
structure to engage with firms on their consideration of climate change risks, setting
expectations for how firms should undertake internal assessment (see section 8).
Climate risk and stress testing
65.
Provisions set out in ICP 16 relating to stress testing and scenario analysis (ieGuidance 16.1.6–17) are intended to help supervisors guide activities undertaken by insurers
to strengthen their view of exposure to future risks. These activities are especially relevant ina climate change context. Climate change is a long-term risk associated with high uncertainty
regarding the timing, scope, and severity of potential impacts, which may manifest beyond theconventional time horizons used by firms and supervisors to assess risks.
66.
The SIF has recognised the value of scenario analysis in its statement on in supportof the Recommendations of the FSB TCFD, noting that “enhanced climate-related disclosure
by insurers will support insurance supervisors in their efforts to ensure the protection ofpolicyholders, the safety and soundness of insurers and the stability of the insurance sector
as a whole. (...) Scenario analysis is a critical tool to understand how the insurance sector
could be impacted by both physical climate impacts as well as the transition to a low-carbon
and climate resilient economy”. 81
67.
Scenario analysis can also be useful to focus on the long-term alignment of investment
portfolios with a low-carbon future, and the steps that insurers may take to address risks
associated with this transition. The FSB TCFD has delivered a stand-alone report on the useof forward-looking scenario analysis, 82 which could be a useful tool for supervisors seeking tobuild awareness and capacity of insurers in their market.

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ICP 19 – Conduct of Business
68.
ICP 19 sets requirements that insurers and intermediaries, in their conduct of
insurance business, treat customers fairly – with provisions relating to fair treatment, productdevelopment and pre-contractual stage, policy servicing, and confidentiality. Climate change
risk may relate to different aspects of insurers’ conduct of business across the contracting andpolicy servicing life cycle. For instance, development of new products for environmental risk
cover and pre-contractual engagement must be appropriately transparent so that customers
can identify and select products that suit their needs. Deepening understanding of climatechange risks may also be a relevant priority for supervisors in the context of other activities tobuild financial literacy relating to insurance products. In terms of policy servicing, a sudden orconcentrated increase in weather-related claims due to climate factors may impact on an
insurers’ capacity to handle claims in a timely manner. Supervisors may also seek to engage
with firms to ensure that they are appropriately considering climate factors in the context ofmarket conduct and consumer protection objectives.
ICP 20 – Public Disclosure69.
ICP 20 requires insurers to disclose relevant, comprehensive and adequate
information on a timely basis in order to give policyholders and market participants a clear
view of their business activities, performance and financial position. The objective of ICP 20
is to enhance market discipline, and deepen understanding of the risks facing an insurer andhow such risks are managed. New and emerging risks – including climate change – are ofprimary relevance to this objective.
70.
Enhancing the availability and quality of climate-related information is now widely
understood to be a foundational component of market and policy action to address climaterelated risks in the financial system. According to research by UN Environment, roughly 30%
of all national-level policy and regulatory measures on sustainable finance relate to disclosure,with climate change issues being a primary focus.
71.
At the international level, the Recommendations and Guidance of the FSB TCFD set
a global framework for the identification, assessment, management, and public disclosure ofclimate-related risks, with supplemental guidance for disclosure by insurers as underwriters
and investors. Looking across the four thematic areas of Guidance, Strategy, Risk
Management, and Metrics and Targets, the FSB TCFD provides a framework for theconsideration of climate change risk, which are closely related to several ICPs (Table 3).
72.
While the Recommendations and Guidance of the FSB TCFD are voluntary,
supervisors may seek to engage with firms to encourage uptake of the TCFD framework as
international best practice.
73.
The Recommendations, supplemental guidance and supporting material of the TCFD
(including the special report on scenario analysis) may be helpful for supervisors as an
example of how the ICPs could be applied in a climate change context (see the annex). Goingforward, supervisors may seek to adopt or make reference to various aspects of the TCFD
framework in their interpretation of the various ICPs discussed above.

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Table 3: Links between FSB TCFD Recommendations and IAIS ICPs
TCFD Thematic
Areas

Recommended Disclosures

Link to IAIS ICPs

Governance: The
organisation’s
governance aroundclimate-related risks
and opportunitiesa) Describe the board’s oversight ofclimate-related risks andopportunities.

ICP 7 – Corporate
Governanceb) Describe management’s role inassessing and managing climaterelated risks and opportunities.

7.3 – Structure andgovernance of the Board
7.10 – Duties of Senior
Management
ICP 20 – Public Disclosure

Strategy: The actualand potential impactsof climate-relatedrisks andopportunities on theorganisation’s
businesses, strategy,
and financial
planninga) Describe the climate-relatedrisks and opportunities theorganisation has identified over the
short, medium, and long term.
b) Describe the impact of climaterelated risks and opportunities on
the organisation’s businesses,
strategy, and financial planning.

ICP 7 – Corporate
Governance
7.2 – Corporate culture,business objectives andstrategies
ICP 20 – Public Disclosurec) Describe the resilience of theorganisation’s strategy, taking into
consideration different climaterelated scenarios, including a 2°C
or lower scenario.
Risk Management:
The processes usedby the organisation to
identify, assess, andmanage climaterelated risksa) Describe the organisation’s ICP 8 – Risk Management
processes for identifying and and Internal Controls
assessing climate-related risks.
8.1 – Systems for risk
management and internalb) Describe the organisation’scontrols
processes for managing climaterelated risks.
8.4 – Risk Management
Functionc) Describe how processes for
ICP 16 – Enterprise Risk
identifying, assessing, andManagement for Solvency
managing climate-related risks are Purposes
integrated into the organisation’s(Provisions relevant tooverall risk management.
stress testing and scenario
analysis)
ICP 20 – Public Disclosure

Metrics andTargets: The metrics
and targets used toa) Disclose the metrics used by theorganisation to assess climate-

ICP 8 – Risk Management
and Internal Controls

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assess and manage
relevant climaterelated risks andopportunities

related risks and opportunities inline with its strategy and risk
management process.

8.5 – Actuarial Functionb) Disclose Scope 1, Scope 2, and,if appropriate, Scope 3 greenhousegas (GHG) emissions, and therelated risks.

9.1 – Supervisory Powersc) Describe the targets used by theorganisation to manage climaterelated risks and opportunities andperformance against targets.

ICP 9 – Supervisory Review
and Reporting
ICP 16 – Enterprise Risk
Management for Solvency
Purposes(Provisions relevant tostress testing and scenario
analysis)
ICP 20 – Public Disclosure

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7Supervisory Approaches to Climate Change Risks

74.
Members of the SIF have taken a range of actions to better understand physical andtransition risks facing insurers’ underwriting and investment businesses, and to strengthenmechanisms for ensuring safety, soundness and stability. Drawing on this body of experience,
this section sets out current and contemplated supervisory approaches for addressing climate
risks, providing a set of options for supervisors to consider in line with their mandates, statutory
responsibilities, and strategic objectives.
75.
The approaches described in this section are not intended to create supervisory
expectations, or to be considered as guidance for supervisors. Many of the approaches
described here relate to recent (or in certain cases ongoing) activities of supervisors, and assuch are very new. Further reflection on this body of emerging practice – and appropriate
evaluation of lessons learned – may be necessary.
7.1

Assessing Climate Change as an Emerging Risk

7.1.1

Mandates and Objectives

76.
A first step for supervisors can be to identify the relevance of climate factors to theircore supervisory mandates and objectives. The impetus for this initial action varies acrossjurisdictions, and may include legislation, requests from government, reconfiguration of
institutional objectives, or independent action. A growing number of supervisors now consider
climate factors as relevant to the core of their statutory obligations.
•

De Nederlandsche Bank (DNB), Netherlands: “Supervisory authorities andpolicymakers have an important role in identifying and mitigating climate-related risks.
A timely, clear and gradual transition is needed to limit transition risks to the financial
sector (…) DNB intends to embed climate-related risks more firmly into the supervisory
approach and will continue to develop and implement climate stress tests. Last but notleast, DNB will continue to contribute to international exchange of knowledge aboutclimate-related risks between supervisory authorities.’’ 83•

Finansinspektionen (FI), Sweden: “Climate changes mean changes to the financesector’s external conditions. They therefore create new risks – and new business
opportunities – for firms. Firms need to monitor and manage these risks; otherwise,quite simply, they are not doing their job. FI, in turn, must monitor what the firms are
doing and not doing – otherwise FI is not doing its job. FI therefore needs to follow how
climate risks and the firms’ sustainability work affect the risks in the financial sector.” 84•Australian Prudential Regulation Authority (APRA), Australia: “As the prudential
regulator, APRA has a clear duty to warn the institutions we regulate if we identify risks
that could threaten the interests of Australia’s financial beneficiaries or the overall
stability of the system.” 8577.
A lack of clarity relating to the boundaries of supervisory mandates, as well as otherexternal factors, may constrain the capacity for action. At this stage, supervisors can manage
the potential for political risks and perception of “overstepping” their role by carefully examining
international practice and the emerging body of evidence detailing the materiality of climate
related risks and opportunities facing insurers, and the financial sector more broadly.

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7.1.2

Initial Assessment

78.
Once the rationale for addressing climate change has been set, a helpful next step canbe an examination of how climate change may impact the insurance sector. This can take theform of an initial “stock-take” of risks, exposures, and strategic responses to climate issues byfirms in the local market. Such an exercise can be useful to explore the different channels
through which climate change may affect insurers, as well as to assess levels of familiarity
within the marketplace.
•

In its 2015 assessment of climate risk to the UK insurance sector, the Bank of England
Prudential Regulation Authority set out a framework for understanding the impacts ofclimate change on insurers, conducted a high-level analysis of sector vulnerabilities,
and set out a supervisory and research agenda for further work (which is now being
implemented).

79.
Internal reviews by supervisors can be useful to assess levels of familiarity andawareness of climate change as an emerging risk, and the relevance of climate change issues
to routine supervisory practices.
7.1.3

Signalling Expectations

80.
Supervisors and regulators can seek to raise awareness of climate change as a newand emerging risk to the insurance sector through market signalling – including publicstatements. In Australia, APRA started a conversation on climate change with a high-levelspeech to the national insurance council, setting out the rationale for action, its intended next
steps, and expectations from firms (see section 8.1). Initial signalling by supervisors often
considers climate change as an emerging risk, with the objective of making firms aware of theimplications for the resilience and viability of their business models. This can be a helpful step
towards a longer-term goal of firms integrating supervisory expectations into action on shortterm physical risks, and the consideration of transition risks (which are often longer-term). Keypriority actions at this stage include:•

Developing a balanced position, respecting boundaries of supervisory mandates;•

Clarifying what firms should expect as part of supervision and regulation;•

Appropriate internal communication to ensure consistent messages.

7.2

Responding to Climate Change risks through Supervisory Practice

7.2.1

Risk Frameworks

81.
A growing number of supervisors believe that physical and transition risks should beconsidered within the mainstream risk framework of insurers, due to the potential implications
across underwriting, investment, operational, strategic, and reputational dimensions. The
Bank of England has confirmed that “in many ways, climate change, and society’s responses
to it, do not necessarily create new categories of financial risk but translate into existing
categories, such as credit and market risk for banks and investors, or risks to underwriting andreserving for insurers”. APRA has undertaken a high-level assessment of climate factors
across its cross-industry CPS 220 Risk Management prudential standard for insurance, banks,and superfunds, resulting in a “heat map” of potential risk areas (Figure 5). Once climate
factors are considered against existing risk categories, the next step is to make tangible
adjustments to engagement strategies and examination tools to respond to climate factors.

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Figure 5: Assessment of climate change within APRA CPS 220 Risk Management
Prudential Standard

Source: APRA, 2017

7.2.2

Information and Data Gathering

82.
Sector-level information requests and data gathering activities present anotherimportant channel for supervisors to deepen understanding of how climate factors may affectfirms. Such efforts may include the provision or endorsement of voluntary disclosure efforts,
surveys, or the implementation of new mandatory disclosure requirements. In Brazil, SUSEP
has launched a survey process with regulated entities to obtain data and information aboutmarket practice on sustainability issues, with a focus on climate issues (see section 8.2).
83.
One challenge for such disclosure initiatives, is that upon receipt of responses,
regulators must validate the data before further analysis can be performed. Investment datafrom third party vendors are often used to perform this validation. As no such vendor covers
all the investment market, supervisors would do well to use multiple data sources, potentiallydrawing on datasets available from universities or other non-profit bodies.
84.

Some areas for improvement identified by supervisors include:•

Improved reporting materials, which clarify definitions, provide guidance onquantitative aspects (ie thresholds), and process dimensions (ie treatment ofsubsidiaries);•

Improved processes and methods to compile, sort, and analyse reported data;•

Mechanisms to overcome data inconsistency and gaps;•

Inclusion of newly developed disclosure techniques and metrics.

7.2.3

Engagement strategies and Examination Tools

85.
An important mechanism for supervisors to increase their understanding of how
climate risks may affect insurers is through the integration of climate-related issues in routine
supervisory engagement and examination. In the US, the NAIC has integrated climate change
factors into national-level supervisory standards through revisions to Financial Condition
Examiners Handbook (see section 8.8). 86 In other jurisdictions, such as the UK, supervisors
are considering how climate change may be considered within standardised supervisory tools,
including ORSA (see section 8.7).

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86.
Supervisors can ask a range of questions to firms regarding their understanding of,responses to, and strategic perspectives on climate change risks and opportunities. 87 Suchquestions may pertain to a range of different issues, including:•Overall familiarity: general understanding of climate change as a risk and an
opportunity; key issues relevant to business; familiarity with recent developments (ieTCFD);•

Governance, Strategy, and Business Model: presence of governance structures
relating to climate change issues; engagement of board and senior management;changes to its business strategy; risk thresholds or indicators; long-term impacts ofclimate change on competitive environment;•

Underwriting: impacts on underwriting risk (pricing, market, claims); treatment ofclimate change factors within risk modelling, exposure assessment and risk
management; consideration of climate factors within product innovation and businessdevelopment; potential for climate change to affect insurance pricing; treatment ofclimate-related claims; potential for market conduct issues;•

Investment: consideration of climate risks and opportunities within investment
policies; impacts on market, credit, counterparty, and other investment risks; current
and potential future impacts on investment portfolios; impacts on capital reserving
decisions;•

Other issues: consideration of potential exposure to liability risks arising from climatechange;•Skills, Capacities, and Culture: organisational structures and delegation of
responsibilities with respect to climate change issues; capacity building; relationship tocorporate values;•

Role of the supervisor: Views on how supervisors should seek to assess exposures
to climate-related risks to firms and the sector as a whole.

7.2.4

Examining current exposures: Stress Testing & Exposure Assessment

Stress Testing87.
Many insurance supervisors regularly perform stress tests to assess the resilience of
the insurance sector to possible adverse developments. Supervisors test the industry’s
resilience to liability-shock events, enabling them to analyse the impact of certain scenarios toan insurer’s available capital as well as helping to identify the key reinsurance counterparties
and jurisdictions to which the general insurance sector could be exposed to. Stress tests canbe split into a set of severe but conceivable scenarios and a capture of exposures which willallow analysis of the impact of potential losses by various sectors of the economy. At a firmspecific level, such testing can help inform an internal review processes as well as improvesupervisors’ view of a firm’s risk management systems, as well as providing an insight into
how well insurers manage their potential exposures to various liability shocks.
88.
Insurance stress testing regimes in several jurisdictions currently consider weatherrelated natural disaster events like hurricanes and windstorms, which may be exacerbated byclimate change. Several supervisors are now seeking to integrate climate change factors into
the design of stress test scenarios, in order to better reflect the likelihood of a given climaterelated event (see sections 8.5 and 8.7). The experience of natural catastrophes in 2017 has
motivated some supervisors to recalibrate stress testing scenarios to reflect a greater
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likelihood of correlated natural catastrophes. 88 Speaking at the International Climate Risk
Conference for Supervisors in April 2018, Bank of England Governor Mark Carney remarked
that “On climate, remember, past is not prologue. In the depressing spirit of Bayesian updatingthat the current climate change trajectory demands, when considering scenarios for 2019, that
we include weather-related events that are more severe and clustered”. 89
89.
A key challenge is how to define stress testing scenarios to best reflect an appropriate
level of event severity, while providing a balanced view across insurers. For this reason,
scenarios have to be broadly applicable, yet detailed enough that insurers would be likely toexperience exposure to similar events. Other challenges relate to the balance of current vsfuture expected risk profiles – in order to best anticipate how climate change could exacerbate
either the impacts or expected probability of extreme events.
90.
It is difficult to reliably assess the return period for certain extreme weather events.
Insurers may consider that such event risks could only emerge over the long-term, allowing
for optionality to mitigate through repricing or transfer risk through financial channels (including
reinsurance). More evidence/investigation is required to explore the potential for more extreme
weather scenarios over short-term timeframes. For firm-level modelling, the industry – andsupervisors – may be limited by the capabilities available from third-party modelling experts.
This has an impact on the range of climate-related disaster scenarios which can be robustly
described and assessed – meaning that many scenarios focus on windstorm and flood events,
rather than more complex climate-related impacts relating to weather variability on ecosystem
function (ie drought-related fires).
91.
Some initial lessons from climate-related stress testing efforts relating to physical risk
include:•Definition of scenarios: It can be helpful to liaise with risk modelling firms, academics,
and other information providers in order to define consistent scenarios and relevant
event parameters (ie frequency, severity). It is important to ascertain how risk models
may take climate change trends into account, as parameters may vary significantly;•

Consider proportionality: Supervisors should seek to apply proportional approaches,
identifying the exposures of firms to various events (eg European windstorms, US
hurricanes, UK flood, etc.), and focus the tests on events and territories with the mostmaterial impacts to firms in the jurisdiction;•

Engage stakeholders: In order to have more acceptance for the investigation, it is
helpful to discuss the intended scenarios in an early stage with a (delegation of) thecompanies involved. Also, it can help to clarify intended follow up and expectations
regarding the ability to withstand certain scenarios.

92.
In a climate change context, stress tests are more readily relevant for the assessmentof exposures to physical risks, as they explore the impacts of specific shock events. Transition
risks may be encapsulated or amplified by shock events – such as unexpected drastic policychanges, or rapid changes in consumer sentiment (such as reactions to scandals); however,quantifying the financial impacts of such phenomena on investment portfolios is extremelycomplex, and involves high levels of uncertainty. In this respect, supervisors often consider
current exposures to transition risks through proxy variables, such as holdings in fossil fuels.
Exposure Assessments
93.
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carbon sectors, and the typologies of financial assets insurers may hold (see section 8).
Supervisors have encountered a number of common issues in designing and conducting
exposure assessments, including:•

Metrics and Boundary conditions: One issue in developing exposure assessments
is the boundary conditions for financial assets considered “high-carbon”. One possible
strategy is to use revenue based metrics – ie examining the share of revenues derived
from carbon-intensive activities of a given firm, project, and related financial assets(see section 8.5). Currently, there remains a wide degree of variability in how different
models may consider the degree to which a given financial asset should be consideredas high-carbon or not (ie in terms of emissions factors and other climate-relevant
indicators), resulting in divergent conclusions from the same underlying data (ieportfolio allocations). Revenue thresholds provide a greater degree of consistency, andgreater availability of data;•

Asset classifications: The variation between industry classification systems used bydifferent financial institutions across different asset classes makes collating exposuresacross risk types and asset classes challenging at a system level. To overcome this,supervisors such as the DNB have put forward a standard set of classification codes
for financial institutions to use.

94.
In addition to building transparency around portfolio allocations, initial exposure
assessments and other supervisory engagement around transition risks can help raiseawareness around climate risks and opportunities within regulated entities, and also help
increase buy-in from firms in other more complex or wide-ranging efforts. Undertaking an initialhigh-level assessment can be an important step towards engaging firms in more complex
efforts to examine potential future risks to portfolios, including through scenario analysis.
7.2.5

Exploring future risk: Scenario Analysis & Alignment95.
In addition to evaluating current climate risks which may be material for insurers,
supervisors are seeking to examine how insurers may be affected by climate risks in the future– including through the use of different climate scenarios, over longer timeframes then thoseused in conventional solvency assessments. As scenario analysis activities seek to explore
trends rather than shocks – including, for instance, changes in the fuel mix of electricity
generation – these methods are most relevant for exploring transition risks to investment
portfolios. However, such tools could also be applied by insurers and supervisors to undertake
forward-looking analysis of physical risk trends, or to assess alignment of underwriting
strategies with a climate-resilient future.
Scenario analysis
96.
A select group of insurance supervisors are undertaking forward-looking scenario
analysis activities, to explore how insurer investment portfolios may be affected by different
market, policy, technological, or social changes associated with the transition to a low-carbon
future (see sections 8.5, 8.7, and 8.9). In 2018, the California Department of Insurance
released the results of a forward-looking scenario analysis of insurer investment portfolios,
arguably the most comprehensive analysis of future transition risks facing the insurance sector(see section 8.9). 90 The aggregate data provides information on the transition risks related toinvestments in oil, gas, thermal coal, and utilities which are held by insurers operating in
California with over US$100m in annual premiums. According to this data, in order forinvestments in utilities to be aligned with a 2 degrees scenario, there is significant need forcoal-fired power capacity retirements. 91 The data also show that the while trajectory for oil andIssues Paper on Climate Change Risks to the Insurance Sector
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gas investments at sector level is currently aligned with a 2 degrees scenario over the next
five years, not every portfolio is necessarily aligned with a 2 degrees pathway.
97.
Forward-looking scenario analysis of climate risks is an emerging concept, and is likely
to be a complex challenge for insurers (including in efforts to undertake climate-related
disclosures in line with TCFD recommendations). Through conducting their own, system-level
scenario analysis exercises, supervisors can complement their view of a firm’s current andfuture climate risks – and also encourage firms to build up their own capacities to evaluate
transition risks. Several supervisors report that the results of scenario analysis activities canbe helpful to identify individual firms which may be at lower levels of sophistication with respect
to climate change issues, and therefore help target the application of limited supervisory
resources.
98.
Scenario analysis of climate risks is an emerging field, and at early stage ofdevelopment. Emerging issues encountered by supervisors in designing and conducting
scenario analysis exercises include:•

Inadequate data and methodological gaps: The main challenges supervisors have
faced in undertaking scenario analysis include difficulty in modelling the dynamics of
certain asset classes (ie looking beyond corporate debt), and a lack of data andgranularity of scenarios for other high-emission sectors;•

Disjunctions in time horizons: long-term risks and impacts may materialise beyond
the horizon of financial risk models used by institutions, and beyond supervisory time
horizons. Supervisors may seek to explore ways to undertake longer-term risk
exploration.

Transparency on alignment with climate-related public policy objectives
99.
In addition to scenario analysis, supervisors can seek qualitative information from firms
to better understand how the expected capital allocations of insurer investment portfolios may
contribute to public policy objectives relating to climate change. Governments around theworld are implementing a diverse array of measures to raise private capital for long-term
investments necessary to achieve the sustainability transition. While such action is usually theremit of other authorities, insurance supervisors can indeed play an important role in gathering
information to help evaluate these efforts – including with respect to current and projectedfinancial flows to low-carbon investments. In France, under Article 173 of the Energy Transition
Law, insurers (as institutional investors) are required to disclose the contribution of investment
portfolios to the international climate objectives of the Paris Agreement and the objectives of
the French national energy transition strategy (see section 8.3). Transparency on capital
allocation thus has merits beyond the measurement of transition risks by disclosing usefulqualitative data.
7.3

Collaboration and Cooperation

7.3.1

Convening

100. Supervisors can utilise their influence to convene insurers, other financial institutions,and civil society stakeholders, to collaborate on climate change issues – such as
understanding financing gaps associated with climate goals. In the Netherlands, DNB
established a Platform on Sustainable Finance in 2016 (see section 8.5) with the aim topromote and encourage a dialogue on sustainable finance in the financial sector.

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7.3.2Engagement with other public authorities

101. Insurance supervisors can work with other financial supervisors, regulators, andgovernment on climate change issues – including efforts to reduce exposure. Such activities
may include:•

Integrating a network of supervisors and central banks. The Network for Greening the
Financial System, gathers almost fifteen members, including the Bank of England, theEuropean central bank and the People’s Bank of China. This network aims at
exchanging experiences, best practices and contribute to the better manage
environmental and climate risks in the financial sector and encourage its contribution
to the transition towards a sustainable economy.

•

Integrating insurance into national roadmaps – and implementing targets into thesector. Following the launch of a national-level sustainable finance strategy announced
as part of UNFCCC COP 22, Morocco’s insurance regulator, Autorité de Contrôle desAssurances et de la Prévoyance Sociale (ACAPS), has brought together the market
association and leading firms to develop an implementation strategy to integratesustainability and climate issues into insurance market development, including targets
for investments in climate-aligned assets;•

Applying insights and lessons from activities in the insurance sector to examination of
how climate factors may affect other regulated entities, such as banks and investment
firms. In the UK, the PRA is undertaking a review of how climate factors may affect the
UK banking sector (see section 8.7);•

Engaging with public authorities working beyond the financial sector. Supervisors canplay an important role in the development of integrated policy frameworks to manage
environmental risk beyond the financial sector, such as national disaster risk
management and climate adaptation planning.

7.3.3

International Engagement

102. Insurance supervisors can learn from experience in other jurisdictions, including
through platforms such as the SIF, and by expressing their interests to address climate issues
within the context of the IAIS.

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8

Observed Practices: Case Studies

103. In 2017, the SIF conducted a survey process for supervisors to share knowledge andcompare experience from their efforts to address climate risks. The survey covered activities
across firm-level supervision and system-level stress testing, examining approaches,
methodologies, data inputs, key challenges, impacts on practice, and next steps. As ofJanuary 2018, nine jurisdictions had responded to the survey:•

Australia: Australian Prudential Regulation Authority (APRA);•

Brazil: Superintendência de Seguros Privados (SUSEP);•France: Autorité de Contrôle Prudentiel et de Résolution (ACPR) ;•Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS);•

Netherlands: De Nederlandsche Bank (DNB);•

Sweden: Finansinspektionen (FI);•

UK: Bank of England Prudential Regulation Authority (PRA);•

USA – California: California Department of Insurance (CDI), also describing activities
undertaken by the US National Association of Insurance Commissioners (NAIC);•

USA – Washington State: Office of the Insurance Commissioner (OIC).

104. The results of the survey process are summarised as case studies in the following
sections, in alphabetical order by jurisdiction. The case studies describe:•

Motivation and Rationale;•

Approach and Methodology;•

Key Findings;•

Lessons: Key Challenges and Areas for Improvement;•

Impacts on Supervisory Practice;•

Next Steps.

8.1

Australia: Australian Prudential Regulation Authority

8.1.1

Motivation and Rationale

105. The motivation for action on climate risk assessment, derived internally from APRA’s
Board, that decided the potential financial risks of climate change were too great and could
not be ignored. Their mandate requires them to protect the interest of APRA beneficiaries bypromoting financial system safety and stability. On a practical level, the supervisory mandate
utilised to take action, has been cross‐industry Prudential Standard CPS 220: Risk
Management (APRA’s general risk management requirements for regulated entities).
106. Three key external developments played a significant role in driving APRA’s internal
action:•The launch of the FSB TCFD;•

The Paris Agreement on Climate Change; andIssues Paper on Climate Change Risks to the Insurance Sector
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•
8.1.2

Australian legal opinion on the legal duty of corporate Boards with respect to climatechange.
Approach and Methodology

107. In February 2017, APRA Executive Board Member Geoff Summerhayes delivered aspeech on climate change to the Insurance Council of Australia, setting out a new agenda for
APRA’s consideration of climate as a prudential risk. 92 Subsequently, APRA has undertaken
a number of steps to integrate climate factors across its supervisory approach, with both
physical and transition risks being considered:•

An internal Climate Change working group has been created to consider these risks
on a cross-industry basis, and is developing a cross-industry risk heat map andassociated supervisory guidance. The heat map relies on APRA’s existing crossindustry risk management framework as a starting point.

•

Analysis is being undertaken to understand transitional risks and their significance forthe long‐term viability of the financial sector in Australia. Liability risk for Boards andtrustees of Superannuation funds has also been identified as an area of focus that
requires further analysis.

•

APRA has advanced discussions with domestic and international regulators andadvisory bodies to better understand financial risks related to climate change and thetransition to a low carbon economy. On a national level, APRA has created aninteragency initiative with Treasury, as well as fellow regulators Australian Securities
and Investments Commission and the Reserve Bank of Australia, on the sustainability
and financial risk dimensions of the economy related to climate change. APRA intends
to focus on information-sharing and improving our understanding in this area.

108. APRA is not yet at a point where it is regularly gathering information from supervised
entities. However, there are several regulated entities in Australia that voluntarily disclose theirclimate change adaptation plans/strategies, which have been used to gauge market response.
In addition, APRA supervisors have begun to ask questions of regulated entities. Initially, thesehave related primarily to awareness. However, APRA has made it known that it will expect
more sophisticated answers, especially from well-resourced and complex entities. External
data sources have also been relied upon, such as publications produced by other international
regulators, academics and think tanks such as the Actuaries Institute and the Climate Institute.
8.1.3

Key Findings

109.

There are no conclusive results to report at present, as the analysis process is ongoing.

8.1.4

Lessons: Key Challenges and Areas for Improvement

110.

There are several areas of ongoing challenges for APRA:•

Obtaining “buy‐in” from the regulated entities. Careful communication has beenrequired so as not to appear to be too prescriptive or raise any political eyebrows.
Messages were fine tuned to ensure that they reflected the focus on financial risk
management.

•

Appropriate internal communication was important to ensure a consistentmessage/approach amongst APRA’s regulators. To this end, APRA’s senior executive
presented an education session for all employees informing them of the emerging risks
in this area and APRA’s plans to manage them.

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•Lack of access to the necessary data.

•

Lack of education to market participants about long‐term financial risks.

111. Addressing some of these issues requires a more formal reporting (and disclosure)regime, combined with adequate and targeted training. This should lead to a bigger emphasison scenario testing – which in turn should produce the necessary data. Moreover, further areas
to be improved include consistency in due diligence practices, better monitoring of existingclimate-related exposures, and refinement of stress testing approaches.
112. APRA’s advice to other regulators is to begin asking entities if they are aware of theissues and learn from those that are proactive in this space. It is important that discussions
are framed not as moral arguments, but rather in the context of financial risks to the system.
In this way, climate change should be measured and managed similar to other risks thatthreaten financial safety.
8.1.5

Impacts on Supervisory Practice113. APRA considers climate risks within its current prudential framework. Under the
Prudential Standard CPS 220 Risk Management, an APRA-regulated institution must maintaina Board-approved risk management strategy. Climate risk is not managed as a separate risk
but managed under other key risks categories such as investments and operations. As part of
the risk management process, APRA will expect entities to conduct stress tests, taking into
account the effects of climate change on their portfolios, especially considering the 2 degree
scenario agreed to in the Paris Climate Accord. Entities must be aware of the risks, both
physical and transition, emanating from the climate change scenarios.
114. Regarding the initiatives described in section two, the impact of these activities is yet
to be seen on APRA’s broader supervisor and regulator strategies.
8.1.6

Next Steps

115. Conversations have begun, both internally and externally, on climate risks and thefinancial impact resulting from the changes. This has been accomplished via several speeches
to industry, discussions amongst various industry related groups and international
regulators. APRA’s Working Group is working to form a climate change risk strategy anddeveloping supervisory guidance for frontline supervisors to facilitate greater external/internal
dialogue with industry. Moreover, APRA has explicitly made reference to climate change risk
in its 2017–20 Corporate Plan.
116. Further discussions in this space will be pursued to better understand the risks
emanating from climate changes, their impact on the financial system, and how these risks
are being managed by the regulated entities including their current (and future) methodology
for measuring and controlling these risks. APRA is planning a survey of regulated entities togain a better understanding of emerging best practice, as well as an industry-wide review ofclimate-related disclosures.
117. APRA has embraced the important work that the SIF is doing and the opportunity thisprovides regulators like APRA and others to learn from each other’s efforts. The SIF shouldseek to continue to support collaboration through information sharing on best practices andemerging risks.

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8.2

Brazil: Superintendência de Seguros Privados (SUSEP)

8.2.1

Motivation and Rationale

118. In Brazil, insurers, led by their Confederation called CNseg, began to organise
themselves with respect to sustainability issues before the regulator and the supervisor. Most
Brazilian companies that are signatories of the Principles for Sustainable Insurance (PSI)
began this movement in 2012, at the occasion of the remarkable Rio+20 UN Conference, heldin Rio de Janeiro, that marked the launch of the Principles.
119. SUSEP, aligned itself with the momentum that the topic was gaining, especially after
COP 21 in 2015, and took the decision in 2016 of supporting the PSI. SUSEP also joined theleading group that would initiate the SIF.
120. The rationale of the supervisor involvement was to align the Brazilian insurance market
with the prudential and conduct of market supervision interests, bringing to the insurance
industry awareness of the ESG risks to the entire life cycle (design of products and services,
underwriting, assets and liability management and claim process) of the business. After theawareness step, it became very important for SUSEP to have this understanding transformed
into concrete actions along the insurers’ processes, which they believe cannot happen without
investment in technology innovation.
8.2.2

Approach(es) and Methodology(ies)121. SUSEP´s first movement was becoming a supporter for the PSI. It happened in April
2016, during the Asociación de Supervisores de Seguros de América Latina (ASSAL)
Conference, and it was a clear signal for the industry that the supervisor would enhance its
supervisory approach to ESG aspects.
122. Secondly, the next step was to understand the state of the art of the sustainability issue
in the Brazilian insurance industry, through an extensive questionnaire of 64 questions, inNovember 2016, especially related to the environmental dimension, before taking any kind of
regulatory measure or even a guidance. Intentionally, the survey had a great range ofquestions, relating to all the aspects of the insurance business, as SUSEP aimed tocomprehend the different maturity phases of the companies. The questions were organisedby the following sections: Reports, Management and Strategy, Studies and Researches,
Operational, Internal Processes, Capacity Building, Third Parties and Others.
8.2.3

Key Findings123. In total, 127 insurers, local reinsurers, open pension entities and capitalisationcompanies, which correspond to 75% of the market supervised by SUSEP, participated in thesurvey.
124. From the answers received, it was concluded that, generally speaking, the supervised
companies have not integrated the ESG risks into their core business activities, being limited
to awareness initiatives towards their employees and energy, water and natural resources
economy actions. Although these initiatives must not be disregarded, they do not reach the
PSI goals and indicate that Brazilian companies are still in the initial maturity phase ofsustainable development.
125. One of the results that was of great relevance was that reinsurers are a step ahead onthese matters compared even with the companies that are PSI signatories. This is mostprobably, due to their international nature, but also the concrete engagement of the high-level
administration to set specific targets and conduct research on this topic.
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8.2.4

Lessons: Key Challenges, Areas for Improvement

126. An important lesson – and a key challenge – is the need for financial supervisory
authorities, as well as the supervised companies, to be deeply engaged in efforts thatincorporate ESG risks into their business, especially climate-related risks. This requires aprofound change of mind-set within institutions. In order to attain this engagement, it is very
important for supervisors to raise awareness of climate issues through provision of
information, guidance, and capacity building.
127. Another important lesson is that pressure on climate issues will not come just from theregulatory bodies and governments but also from investors, shareholders, and consumers.
For this reason, it would be very beneficial to the insurance market in Brazil to organise asystem of self-regulation on the issue.
128. A third lesson stems from the importance of new technologies in facilitating change
management on environmental issues – including the use of fintech in insurance (insurtech).
8.2.5

Impacts on Supervisory Practice129. This is the first change that SUSEP is making to its regulatory framework. The reportand main findings were published on SUSEP’s institutional website in June 2017. 93
130. Since then, SUSEP has engaged in the Financial Innovation Lab, 94 a joint initiative of
the Inter-American Development Bank (IADB), the Brazilian Association of Development
Agencies, and the Brazilian Securities Commission (CVM). As a member of the Lab, in which
also participate the closed pension entities supervisory authority (Previc), the Brazilian
Development Bank (BNDES), the UK Consulate and many representatives of the private
sector, SUSEP is engaged with the main supervisors of the Brazilian financial system (theCentral Bank is an observer) to develop concrete responses to the climate change challenge.
The Lab has a three year mandate and is organised into four working groups, of which SUSEP
is participating in three (on Green Bonds, Green Finance and Fintech).
131. Another notable initiative is the inclusion of the sustainability approach to the work to
be undertaken by the Task-Force Brazil-UK, which also includes the insurtech development,enhancement of insurance bond product, and others.
8.2.6

Next steps

132.

Going forward, SUSEP intends to:

•

•

•

Advance the Brazilian Insurtech hub (camara.e-net) to the Fintech working group of
the Financial Innovation Lab; the idea is to develop a ‘sandbox’ for all of the supervised
markets;
Present some regulatory proposals to SUSEP´s board regarding awareness of climate
issues, disclosure in the companies´ investment policies, and development of green
insurance products;
Stimulate the auto-regulation of the market supervised by SUSEP.

8.3

France: Autorité de Contrôle Prudentiel et de Résolution (ACPR)

8.3.1

Motivation and Rationale

133. The COP21 and the subsequent Paris Agreement have fostered among French
agencies an intensive work programme to address and mitigate climate related risks. The
2015 Energy Transition Law has notably formalised the French low carbon strategy andIssues Paper on Climate Change Risks to the Insurance Sector
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developed it for a large number of sectors. In particular, the financial sector has been the focusof article 173 which introduced a set of new reporting requirements for non-financial corporates
and financial institutions with a dual objective: (i) to improve the quality of disclosed informationin order to facilitate the integration of climate factors by financial actors; (ii) to strengthen theappropriation of climate issues by corporates and financial institutions. Besides, article 173
requires banks to consider the risks associated with climate change in their risk management
framework and the government to report on the potential stress-test scenarios related to risks
associated with climate change.
134. In this context, within its core mandate of ensuring the stability of the financial system,
the ACPR is actively including climate-related risks in its day-to-day supervisory framework
for both banks and insurers.
8.3.2

Approach and Methodology

8.3.2.1 Disclosure
135. The French Energy Transition law was passed in August 2015. The provisions of its
Article 173, clarified by two Regulatory Decrees, modify both the content and modalities of
information disclosure by insurers on climate-related risks:••

For smaller entities, with total assets below €500m (considered for the group or solo
entities), the disclosure requirements include: a full description of their investment
policy related to ESG issues; a description of information practices of individual
investors/subscribers on this investment policy; information on a potential voluntary
adherence to a specific code of conduct; a description of internal risk identification andmanagement processes related to those issues.
In addition to the requirements mentioned above, larger entities with total assets above€500m are notably requested to provide: a detailed description of applied criteria, of
the information computed (financial, non-financial information, internal or external
analysis, etc.), on methodology, assumptions and results, and on how these results
are taken into account in investment policy. The institution should notably describe
how its investment policy has been affected by the outcome of the analysis process,and how it will contribute to the overall objective of limiting global warming.

136. The French approach has allowed freedom in how investors can meet this newreporting requirement, and considers this flexibility as critical to inspiring a comprehensive
approach to risk thinking among investors in terms of their alignment with high-level transition
goals.
137. The assessment of the new disclosure framework regarding insurers’ investment
policy is currently being carried out by private observers. 95
8.3.2.2 Risk Identification
138. The ACPR uses the now customary risk typology, distinguishing between the twoconcepts of “climate change” itself and the “energy/low carbon transition”. Of course, this
distinction does not necessarily imply a dichotomy as the two dimensions are interconnected.
From these two concepts, two classes of climate change-related risks are addressed:•

physical risks that result from the direct damages caused by climate events;

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transition, especially when these changes are abrupt and not adequately anticipated.

8.3.2.3 Stress testing
139. The fifth paragraph of the article 173 required the government to report about “regularstress-testing scenarios representative of climate related risks”. The report on “Assessing
climate change-related risks in the banking sector” was published in February 2017. It covered
three broad issues: i. a stock-take on French banks’ current practices with respect to managing
climate change related risks; ii. a tentative cartography of these risks; and iii. first thoughts
about what climate stress tests on the banking sector could look like.
140. The current lack of necessary data or shared methodologies led to the conclusion thatfurther reflection is needed before envisioning the implementation of stress tests or evenscenario-based analyses, which could be a more relevant approach, with respect to risks
associated with climate change.
8.3.3

Key Findings141. The ACPR recently led an analysis on the exposition of French insurers to climatechange risks that was published in June 2018. Using data provided in prudential reporting at
end 2016 on the investments held by French insurers after application of the look-throughapproach, this analysis presents the level of exposure of their portfolio to climate change risks,
via an evaluation of the value of investments in countries vulnerable to physical risks and insectors deemed sensitive to transition risks. Exposure of French insurers to transition risks
seems significant: between €240bn and €450bn of assets (that is 10 to 20%) would be issued
by entities from sectors exposed or potentially exposed to transition risks. Investment of
insurers in securities issued in countries presenting a medium to strong physical risk are,however, almost neglectable.
142. As France has adopted a two-step approach, implementing the new disclosure
requirements for banks first and then for insurers with a two-year delay, the currently available
findings focus primarily on banks. Analysis for the insurance industry is underway but existing
results on banks can also be informative in the insurance context.
8.3.3.1 Disclosure143. The disclosure practices in the insurance industry will be assessed in another
Government report due end 2018. In the meantime, private independent observers aremonitoring the on-going disclosure process by insurers and other investors. According to theiranalysis, 51 out of 163 French Institutional Investors have already complied with Article 173
requirements (in July 2017). They represent 38% of investors and 88% of assets undermanagement. Furthermore, two thirds of insurers have disclosed their climate-related risk
exposure already. Those observers identified a sort of ripple effect, through a disseminationof good practices, from big investors to the rest of the financial community.
8.3.3.2 Risk identification
Physical risk
144. The above-mentioned report tentatively draws a mapping of risks for banks. The
French banking sector's exposure to physical risks – including the whole exposure on
residential real estate – amounts 39% of total outstanding loans. This figure lowers to 12% if
we factor in exposure in the nine industrial and commercial sectors only, which is a relatively
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moderate level. Furthermore, exposures are concentrated in Western Europe and Northern
America, regions with a relatively lower degree of vulnerability to physical risks. For instance,
only 3% of corporate exposure is located in high-vulnerability area.
145. A more definite conclusion would require more granular data, notably to allow infraregional analysis. In addition, the French insurance framework for natural disasters provides
an important source of mitigation. The diversification of banks’ and/or clients’ activities may
also significantly damper final impacts of physical risks.
146. Regarding Insurance, some estimates of the future cost of climate-related risk were
provided in the context of the COP21. Only one third of the increase in costs is arising fromclimate factors, as opposed to the overall increase of value of assets.
Transition risk
147. The exposure of French banks to the sectors most sensitive to the transition risks
amounts to slightly less of 13% of total exposures. Looking at the geographic distribution, thisexposure is mainly concentrated in Europe (62%, of which 27% in France).
8.3.3.3 Examples from Insurers
148. The French insurance industry, within the framework of professional associations, wasorganised to exchange key findings on climate risk evaluation and share best practices,notably on how to comply with legal disclosure requirements.
149. One insurer calculated potential minimal damages using the most optimistic COP21
scenario: the outcome would be a doubling of losses in 2050 (20% due to climate change itself
and 80% due to an increase in vulnerabilities). Another firm mapped its portfolio to assess its
climate-related risk exposure, by using a matrix approach: by sector of activity, by type of risk,
and by time horizon.
150. In addition to evaluating physical and transition risks, one firm has also assessed its
exposure to a “responsibility risk”, that includes its carbon footprint, its contribution to achieving
the collective goal of reducing carbon emissions, and its subsequent reputation risk for notcomplying enough. Many firms have been assisted by an external contractor to assess theircarbon footprint.
8.3.4

Lessons: Key Challenges and Areas for Improvement

Improve data
151. The first assessment exercise evidenced issues regarding data availability and quality.
The next assessments should certainly adopt a more granular approach, while handling also
the lack of homogeneity in historical data (due notably to changes in coverage, reporting or
insurance practices over time).
Develop comprehensiveness of climate-related risk assessment
152. The first climate risk exercises typically only partially cover insurers’ portfolios. For
instance, analyses on transition risk may have been limited to utilities and automotive sectors
only. Alternatively, modelling of physical risk impact was limited to real estate andinfrastructure financing. Second round effects are not yet addressed. Thus far, physical risk isoften not assessed in bond portfolios.
Address connections between climate-related risks

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153. Physical and transition risks are commonly viewed in isolation (ie as independent
phenomena) out of their common climate-change context (which is a key source of correlation
between these risks). An area for further work would be to explore and quantify
interconnections between these two aspects.
Align firms’ strategies on asset and liability sides
154. Insurers have to ensure consistency between their commercial strategy and exposure
regarding climate-related risks on the one hand, and their investment policy on the other.
Assess interconnectedness between financial industries
155. One key element to address climate-related risks is to properly identify the final risk
bearer. Further analysis on insurance protection, notably in the long-run, would be useful toimprove risk identification. Further work is needed to assess in greater detail the potential
effects of the following factors: the increase in insurance premium, or even market withdrawal
by insurers, due to more frequent natural disasters; the overall impact on financial stability ofrecurrent natural catastrophes on insurers’ balance sheets; the potential misalignment
between, on the one hand, economic growth and growing concentration of activities and, on
the other hand, the scope of insurance coverage. Understanding those interconnections is
one of the main topics currently under examination within the ACPR. To this end, an event
gathering insurer and banks was organised on November 30th.
Improve reporting
156. To increase the overall quality but also the simplicity of financial institutions reportingon their climate risk exposure, the key may be to envisage some reporting standards in orderto facilitate comparability and widespread usage by firms. Besides, due to the above
mentioned methodological uncertainties, firms face challenges in communicating unclear
results to the market.
8.3.5

Impacts on Supervisory Practice157. Playing an active role in climate risk mitigation is one of the key objectives of theBanque de France’s and the ACPR’s internal strategy for 2020. Climate-related risks are being
gradually considered in the supervisory policy of the ACPR. The French approach has allowed
freedom in how financial institutions can meet the new reporting requirements. The ACPR iscurrently reflecting on how to take due account of this softer approach in its supervision.
158. Furthermore, as part of its mandate to ensure financial stability, the ACPR runs various
outreach activities with firms to raise awareness and understanding of climate risk issues in
the financial community. Regular meetings are organised with the industry. In 2017, the ACPR
gathered the main banks and the main insurers separately, before organising a joint event at
the end of the year as mentioned above. The ACPR also organises research seminars on
climate-related issues, individually or with other supervisors, opened to the industry andacademics.
159. As the work on climate-related issues is multi-faceted, requiring both micro and macroprudential approaches, the ACPR is engaged in an inter-agencies network, with the Banquede France (climate-related issues are coordinated within the broader context of the Financial
Stability Cluster, established between the central bank and the supervisor), and the Treasury.
160. Also, the ACPR is participating in key international activities related to climate change,
and is notably a founding member of the SIF.

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8.3.6

Next Steps

161. Regarding both the banking and insurance sectors, the ACPR set-up a follow-up
monitoring committee following the publication of the report on banks. The aim is to promote
and accompany banks and insurers in developing tools to analyse climate change-relatedrisks and then to allow sharing of best practices, including those coming from more academicareas. This process will continue into 2018 and might tentatively lead to more concrete
proposals about ways to set-up scenario-based analysis of those risks, at least for banks.
8.4

Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS)

8.4.1

Approach and Methodology

162. In 2016, as part of the quarterly monitoring of the insurance sector vulnerabilities,
IVASS conducted a survey on climate change among a "vulnerabilities" sample composed of
six individual companies and ten groups. The aim was to analyse the degree of preparedness
and the strategies implemented by the companies/groups with reference to investment
policies, risk management and mitigation, and the possible involvement of the policyholders.
8.4.2

Key Findings

163. Analysis showed that the leading players in the national insurance market - four groups
actively engaged internationally as signatories of some of the main initiatives on environmental
issues - boasted good/high standards and were equipped with clear policies at group level
characterised by:
•

•

•
•
•
•

8.4.3

Green-oriented investment strategies that integrate aspects related to ESG issues withmore reputation-related aspects, not neglecting any opportunities for financial returns
associated, for example, with long-term investments in sectors (such as renewableenergy, clean technology, etc). Those strategies also include the updating of so-called
Exclusion Lists, ie lists of issuers to be excluded from the basket of the companies inwhich to invest;
Prudent underwriting practices with continuous risk monitoring and analysis of claims
that take into account (for different geographical areas) also expert evaluations andthe use of Nat-Cat models, in order to assess if and how the insurance services offered
should or should not be updated to better take into consideration the impacts
associated with weather events;
Risk mitigation especially through reinsurance cover;
Processes, internal rules and guidelines that take the form, for example, of newly
created specialised structures within the risk management function;
Reporting dedicated to the specific environmental aspect (environmental reporting
guidelines);
Commitment to raise policyholders’ awareness to reduce climate change-related
losses through consultancy services focusing on the corporate segment, which insome cases require customers (in order to provide coverage) to introduce strategies
aimed at minimising the risk and the extent of damages caused by natural events.
Lessons: Key Challenges and Areas for Improvement

164. For the remaining companies/groups, the results of the investigation showed thatconsiderable attention was paid to the issue of environmental protection from a behaviouralpoint of view within companies, but less so concerning climate change and risk management
in relation to investments.
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8.4.4

Next Steps

165. IVASS is considering repeating the survey in the coming months, monitoring
vulnerabilities in order to assess any progress made since 2016.
8.5

Netherlands: De Nederlandsche Bank (DNB)

8.5.1

Motivation and Rationale

166. Responsibility for the identification of risks to the financial system is held within the
mandate of the DNB as a supervisory authority. DNB has embedded sustainability in its coretasks and operational management, working “not only with an eye for the economic dimension
but also for social and ecological aspects”. 96 DNB first examined financial risks relating toclimate change in 2014, in response to a request from Parliament. In 2016, DNB conducted astudy of macro-economic and financial sector implications of the transition to a carbon-neutral
economy in the report “Time for Transition”. 97
167. In 2017, DNB’s supervision and policy divisions independently initiated new work on
climate change and the insurance sector, including:
•

•
8.5.2

A new report examining how climate change may affect the Dutch financial sector,
entitled “Waterproof? An exploration of climate-related risks for the Dutch financial
sector”. In this report, released in October 2017, DNB examines two types of risk
categories: 1. physical risks arising from climate-related damage such as storm, hailand flooding and 2. transition risks resulting from the transition to a carbon-neutral
economy. Across these two categories, DNB explores four themes: the consequencesof climate change for insurers, the impact of large-scale flooding on the financial sector,
the risks arising from carbon intensive investments and the risks related to green
finance;
Stress Testing: DNB has integrated new climate scenarios into its stress test of thegeneral insurance sector.
Approach and Methodology

8.5.2.1 Physical Risks
168.
•
•

DNB’s activities relating to physical risks include:
Within the “Waterproof?” report 98, investigating: 1. the impact of climate change on
insurers’ liabilities; and 2. the impact of climate change on the assets of financial
institutions, with a particular focus on flood risk in the Netherlands;
A stress test on the general insurance sector, including two windstorm scenarios andone extreme weather scenario (based on hail and/or precipitation exposures).

“Waterproof?” Report169. A variety of methodologies have been used to assess climate risk, drawing on bothquantitative and qualitative data from multiple sources. These include:•

Structured interviews and questionnaires: DNB sent out a survey to its six largest
insurers, which included a quantitative template asking for the shares of expected
losses and reinsurance costs that are driven by climate-related factors. The survey
also collected qualitative data by having structured interviews with various
stakeholders, including insurers, brokers, modelling firms (RMS, AIR, Corelogic),supervisors and ministries;

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••Modelling future premiums and capital requirements: To identify climate trends infuture premiums and capital requirements, the analysis was based primarily on the2014 climate scenarios of the Dutch meteorological institute (KNMI). These are in turnaligned with the work of the IPCC and give trends in four scenarios tailored to theNetherlands;
Analysis of flood risk and financial impacts on assets of banks, insurers, and pension
funds: In consideration of flood risk scenarios, the DNB based itself on the extensive
National Flood Risk Analysis by the Dutch ministry of infrastructure and environment(VNK2) in cooperation with one of the engineering firms involved (Deltares). Two
scenarios selected for the report which are in line with the standards for financial
shocks in supervisory frameworks (eg Solvency II and Basel III). These involve
breaching events with a probability in the order of magnitude of 1/200 and 1/1000
years.

Stress Test of General Insurance Sector
170. The stress test of general insurers is bottom-up, meaning the scenarios are defined by
DNB but the participating institutions must investigate and report the (quantitative) impact ofthese scenarios. DNB has developed the scenarios and consulted them with the sector during
a meeting. As a follow-up of this meeting, some clarifications have been added to the
instructions and the explanations of the scenarios.
171. In terms of boundary conditions/proxies/assumptions, for the windstorm scenarios, theparticipating undertakings are asked to base their outcomes on certain predefined catastrophe
scenarios of the RMS windstorm model, so the assumption is made that this model is a good
approximation of the real loss amount for a windstorm event of a certain return period. For theextreme weather scenario, actual loss data of a severe recent precipitation loss is used as aproxy for a possible future event. DNB deemed these assumptions as acceptable because
rather extreme scenarios are tested, so any estimation errors are unlikely to have an impact
on the final conclusions regarding the ability to withstand the stress scenarios.
8.5.2.2 Transition risks
172.
•

•

DNB activities relating to transition risks include:
Within the “Waterproof?” report: 99 investigating climate risks to the financial sector:
transition risk considerations include 1. the risks arising from carbon-intensive
investments, and 2. the risks related to green finance. The analyses in the report build
on work undertaken in 2016 on the carbon exposures of Dutch financial institutions,and included a data request into exposures of financial institutions;
Facilitating dialogue between the financial sector, policy makers and supervisors on
climate risks within the Platform for Sustainable Finance. 100

173. For its 2016, study DNB conducted a number of qualitative interviews and reached out
to the largest insurance, investment and banking firms with a request to provide their
exposures to several energy intensive sectors, such as fossil fuels. The 2016 exercise did notcover the full market, but rather the largest financial firms by market share. It also was limited
to a number of energy intensive sectors. Furthermore, it did not incorporate second roundeffects from the exposure of one financial firm to another. Overall, it was an exposure collation
exercise, which is a first step in any risk management process. Therefore, more substantial
work has to be undertaken in order for viable conclusions to be drawn from it.

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174. For the 2017 “Waterproof?” report, the DNB conducted a survey among the threelargest banks, six insurers and six pension funds. Together, these institutions represent about
75% of the cumulative balance sheet total of the Dutch financial sector. They focused on
exposures to those sectors that, together with the built environment, are responsible for thebulk of CO2 emissions. These sectors include fossil fuel producers and suppliers as well as
the following carbon-intensive sectors: energy generation, heavy industry (chemical, steel,mining, paper, cement), transport and agriculture.
175. The Sustainable Finance Platform was initiated by the DNB in 2016, and brings
together DNB (chair), the Dutch Banking Association, the Dutch Association of Insurers, theFederation of the Dutch Pension Funds, the Dutch Fund and Asset Management Association,
the Netherlands Authority for the Financial Markets, the Ministry of Finance, the Ministry of
Economic Affairs and Climate Policy, and the think-tank Sustainable Finance Lab. The
objective of the platform is to promote a dialogue on sustainable finance in the financial sector.
Members meet twice annually to discuss new and ongoing sustainability projects within the
Dutch financial sector. DNB acts as a facilitator of these meetings, which aim to develop crosssectoral links, and, in doing so, prevent or overcome obstacles to sustainable funding and tocollectively encourage sustainability practice.
8.5.3

Key Findings

176. The results of the DNB’s research have revealed profound climate impacts across the
Netherlands’ financial landscape, involving both physical and transition risk factors. Many suchfactors are not merely a future burden, but a present and increasing reality.
8.5.3.1 Physical Risks
177. Insurer liabilities: More than 95% of all non-life insurance policies are issued in the
Netherlands. Based on the KNMI scenarios, the number of climate-related claims for insurers
is set to increase in the future, and may even double by 2085. In 2016, for homeowner’s
insurance policies, the climate-related claims burden as a proportion of premiums is estimatedto be 13%. In 2085, for a 3.5-degree increase scenario, this number is estimated to increaseby 25-131%. For a 1.5-degree scenario, the increase is estimated at 10-52%. 101
178. Flood Risk: About 60% of the land mass in the Netherlands is susceptible to flooding,with 26% of it actually lying below sea level and 34% only being at risk of riverine flooding. In
a worst-case scenario, with multiple breaches in defences on the west coast, causing
significant parts of the Randstad conurbation to flood, estimated economic losses could riseas high as €120bn. However, the likelihood of such a scenario materialising is very small. In
the two scenarios tested, total economic losses are estimated to be between €20-60bn, ie
ranging between 15% and 50% of the damage estimated in a worst-case scenario.
8.5.3.2 Transition Risks
179. DNB’s 2017 survey on transition risks revealed that about 75% of institutions perceive
the energy transition as a relevant risk to their own balance sheet, and that they are building
up expertise on this subject. The survey also shows that Dutch financial institutions havesignificant exposures to sectors with increased transition risks. For banks, 11% of theirbalance sheet is tied to carbon-intensive sectors. The corresponding percentage for pension
funds is 12.4%. Exposures for insurers seem to be less substantial at 4.5%. Compared to theend of 2015, the total exposure volume increased slightly. This is partially due to a 23%
increase in bank loans to fossil fuel producers combined with slightly contracting bank balance
sheets. A possible explanation is that the oil and gas market recovered in 2016 from an oil
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price low in 2015. This led to an increase in new loans and to better utilisation of existing credit
facilities. Pension funds' exposures to the fossil fuel sector went up €6bn, but remained roughly
the same in terms of the balance sheet percentage.
180. Pension funds and insurers are mainly exposed through shares, bonds andcommodities, which makes them vulnerable to market fluctuations. Pension funds have thelargest exposures, as they primarily invest in shares and commodities, which run a higher riskof sudden write-downs compared to bonds. A survey among 28 financial institutions revealed
that almost all were of the opinion that transition risks are not fully priced in at the moment,
which means there is a risk of sudden downward shocks in the event of new measures ortechnological developments.
8.5.4

Lessons: Key Challenges and Areas for Improvement

181. DNB’s efforts to assess climate change financial risk, like much of the international
community, is still establishing effective groundwork for the future. As such, typical issues
range from effective stakeholder engagement, to data acquisition and compatibility, and toestablishing stress test scenario parameters.
8.5.4.1 Physical Risks
182. Key challenges encountered during the analysis of physical risks undertaken for the“Waterproof?” report include:•••

Identifying the relevant aspects of climate change that may impact financial institutions;Obtaining views from different stakeholders, with respect to a discipline (weather,climate and climate change) in which the supervisor historically has little expertise; andConnecting different data sources to estimate the impact of flood damage on thebalance sheets of financial institutions.

183. Key challenges encountered during the general insurance stress testing exercise
include:•••Definition of the stress scenarios;
Deciding on the severity of the scenarios; andFinding the right balance between the required efforts of the companies involved andthe information required to assess the stress resistance.

184. DNB reports that while some insurers are already modelling natural catastrophe risk,
data gaps and uncertainties surrounding climate trends (both in terms of expected andunexpected losses) prove to be a barrier for modelling firms to explicitly include climate trends
in their analysis.
185. For financial institutions in general, on the asset side, there is a lack of granulargeographical data linked to their investments/loans in order to make estimations of their
exposure to physical risk. In relation to stress testing, although very severe weather conditions
are tested, companies could argue that these risks could only emerge in the next decades andthat they would have enough time to change their current mitigation measures (reinsurance).
The gap here is the fact that it is not possible to reliably assess the return period for certain
extreme weather events.
8.5.4.2 Transition Risks
186. Availability of data remains an issue. The variation between industry classification
systems used by different financial institutions across different asset classes, makes collating
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exposures across risk types and asset classes challenging at a system level. To overcome
this, DNB had to put forward a standard set of classification codes for financial institutions.
Further work on developing more sophisticated approaches to estimating transition risk
exposure, for example quantitative scenario analysis, is required at the firm and national level.
Better access to financial exposure data per sector, asset class and country, would help spurthese types of analyses.
187. DNB considers a study into carbon intensive exposures by financial institutions as agood first step into the topic. It can raise awareness of the issue at both national andinternational level, within and outside the financial sector. A next step could be to further
examine the quantification of risks and take them into account in supervisory practices.
8.5.5

Impacts on Supervisory Practice188. The “Waterproof?” report presents several recommendations, both to the financial
sector, to the supervisor and to policy makers. Recommendations for the supervisor include:
•

•

8.5.6

Embedding climate-related risks more firmly into the supervisory approach: climate
risks will be incorporated in DNB’s assessment frameworks and will also be addressed
in interviews with supervised institutions. DNB will furthermore continue to work on thedevelopment of climate stress tests;
Building the knowledge base and promoting international exchange of best practices:
DNB is chairing the national Sustainable Finance Platform. At a global level, we
endeavour to develop internationally acknowledged best practices to help supervisory
authorities in addressing climate-related risks. To achieve this DNB actively
participates in various international fora, including the SIF.
Next Steps

189. DNB has pointed out sustainability as one of its three focus areas in its Supervisory
Strategy 2018-22 102 as DNB aims to ‘foster a forward-looking and sustainable sector’. As partof this, DNB wants to embed sustainability more strongly in its supervisory tasks and promote
an international exchange of best practices, as both recommended in “Waterproof?”. DNB
intends to take the following steps in 2018 to embed climate-related risks more firmly into ourapproach to supervision: 1. start developing an assessment framework for climate-relatedrisks and address these risks in interviews with supervised institutions and 2. developing a
stress test for transition risks, which focuses on the impact of an energy transition on the sector
as a whole. Earlier in 2018, on 6 April, DNB organised a Conference on Climate Risk andSupervision together with the Bank of England and Banque de France.
8.6

Sweden: Finansinspektionen (FI)

8.6.1

Motivation and Rationale

190. Since 2015, the Swedish Government has requested FI to perform activities related tosustainability issues affecting the financial sector. In order to approach the task effectively, FI
has so far chosen to limit the scope of the sustainability work to climate-related risks. This is
motivated, among other things, by the importance of climate-related issues and their direct
and concrete consequences on the economy. In 2017, the Government requested FI toanalyse the possibilities within its remit to contribute to promoting sustainable development
through the financial system and to take actions to ensure that sustainability issues andclimate-related risks are considered in financial companies’ business models and risk
management, and hence become an integrated part of financial supervision and regulation.
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191. Climate change means changes to the financial sector’s external conditions. They
therefore create new risks – but also new business opportunities – for firms. Firms need tomonitor and manage these risks. FI, in turn, needs to follow how climate-related issues affectthe risks in the financial sector. The relevance varies between companies, eg depending on
products and geographic distribution activities. Also, specific national factors have to be taken
into consideration. One that can be mentioned is that Sweden is not expected to be affectedby increased numbers or more intense storms due to climate change. Relating to risk
management, monitoring the development of scenario analysis is of interest as it has potential
to capture the “slow burning” and complex nature of climate-related risks.
8.6.2

Approach and Methodology

192. Considering that climate-related issues is a natural development of FI’s remit topromote financial stability, good consumer protection and well-functioning markets. Climaterelated risks, and sustainability risks in general are risks that must be considered and placedcorrectly in the risk assessment that both the insurers and FI conduct.
193. A first step towards integrating climate-related issues into the supervision of insurers
was taken in 2017, when FI made an inventory of potential supervisory activities, given the
climate-related risks companies are exposed to. These activities are to be conducted starting2018.
194. FI also started to explore the field of climate-related scenario analysis in 2017 byinitiating a dialogue with insurers and banks. Some of the questions discussed were:•

What experience of scenario analysis do the companies have?

•

What risks and issues can be addressed through scenario analysis and what is therelevant time horizon?

•

What are the main difficulties when it comes to scenario analysis?

•

Is there a need of coordination or cooperation within this area – within the insurance
industry, and between the insurance industry and FI?

8.6.3

Key Findings

195. As FI is in a starting stage of integrating climate-related issues into the supervision of
insurers, it is of importance that activities conducted at this stage enable FI to develop its
understanding of the climate-related risks that affect financial companies in general, andinsurers in particular. Hence, an important purpose of the activities planned is to map andbetter understand how insurers identify, manage and measure climate-related risks. It is also
important to get a broader understanding of similarities and differences in risk exposure andrisk management between different parts of the financial sector, and how this affects thesupervision.
196. An important activity planned for 2018 is to review how financial companies integrate
climate-related risks in their corporate governance. This will give FI a better understanding of
how the insurance sector identifies and manages climate-related risks and opportunities, andfeed into FI’s work going forward.
197. The general picture from the dialogue on scenario analysis is that several companies
have started some activity, but the work it still at an early stage. Several companies point to
the difficulties related to developing relevant scenarios, not the least due to the complexity ofclimate-related issues. In general, industry representatives react positively to FI taking theinitiative to discuss issues related to scenario analysis. For example, the representatives
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consider it valuable if FI would act as a link between, on the one hand, companies and, on theother hand, the international regulatory and supervisory world and the research community.
8.6.4

Lessons: Key Challenges and Areas for Improvement

198. Climate-related issues are placing new demands on supervision and expertise, andwork in this area needs to develop. In this initial stage FI is focusing on developing a structured
process for managing climate-related issues and building knowledge within the authority – tobe able to address relevant issues and assess the risks associated to them.
8.6.5

Impacts on Supervisory Practice199. Sustainability risks and, in particular, risks related to climate change are linked to andare part of structural changes in the economy. But this does not mean that they will appear
only in a more or less distant future. Their “slow-burning” character, affecting economies more
and more visibly over time, also means that new information and new insights will evolve overtime and new technologies will be developed to handle them. Hence, supervisory authorities
need to be flexible and prepared to change policies, measures, and actions when necessary.
200. When it comes to scenario analysis, FI believes that the development of a common
framework should be advanced at an international level and experience points to the need forinternationally established measures and methods. Against this background, FI is engaged in
the international work within this area and intends to actively contribute to this work moving
forward.
201. Within the EU, the task of taking part in the development of a framework for scenario
analysis would be relevant for the European Supervisory Authorities (ESAs) and the European
Systemic Risk Board (ESRB) to take on. The ESRB already plays a key role in the current
stress testing exercises, and should therefore be well placed to also take part in thedevelopment of such a framework. Together with Banque de France, FI has made a proposal
to the ESRB during 2017 to reactivate its work on climate-related issues, with a view to futurecontributions related to eg scenario analysis.
8.6.6

Next Steps

202. Climate change is a truly global issue that requires global response. Therefore, FI willcontinue to be actively involved in international discussions when developing its supervisory
framework, policies and activities to manage climate-related issues.
8.7

UK: Bank of England Prudential Regulation Authority

8.7.1

Motivation and Rationale

203. In 2012 a coalition of investors, civil society organisations, and universities wrote to
the BoE, to request an investigation concerning the impact of environmentally damaging
investments as systemic risks to the UK Financial system and economic growth. This was
rapidly followed in 2013, when the Department for Environment, Food and Rural Affairs(DEFRA) under the UK Climate Change Act 2008, invited the PRA to submit a climate change
adaption report during the second round of adaption reporting. The PRA accepted this thefollowing year, and focussed their response on insurance. The resultant report was publishedin September 2015, accompanied by the Governor’s climate change speech at Lloyd’s ofLondon. 103 During and since these catalytic events, the PRA has continued to address climaterelated risks through a variety of supervisory activities, research, dialogue, domestic andinternational engagement. 104 This case study considers the PRA’s climate change
assessment work to date in 2017.
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8.7.2

Approach and Methodology

8.7.2.1 Physical Risk: General Insurance Stress Testing (GIST) 2017
204. The PRA’s GIST initiative covers the largest general insurers, tests the industry’s
resilience to liability-shock events and enables the PRA to analyse the impact of certain
scenarios to a firm’s available capital, as well as helping them identify the key reinsurer
counterparties and jurisdictions to which the UK general insurance sector could be exposed.
At a firm-specific level, this test will inform the internal model review process and the PRA’sview of a firm’s risk management systems and will provide insight into how well firms manage
their potential exposures to various liability shocks.
•

•
•
•
•
•
•

The first section of the exercise involved four natural catastrophe scenarios and one
economic downturn scenario. The physical model parameters such as: the event
footprint/location; and the event severity – such as wind speed, water depth etc, were
decided in consultation with model developers. The model scenarios cover;
Severe winter season with two severe windstorms across the South East of the UK
and Northern Europe combined with two UK floods;
Pacific North-West earthquake of magnitude 9 on the Richter Scale and associatedtsunami (USA-Canada);
Earthquake of magnitude 8 along the San Andreas Fault in the region of Los Angeles
followed by a second event of magnitude 7;
Series of three US hurricanes of category 3 and 4 across the Caribbean, Gulf of
Mexico, and making landfall in continental USA;
Asset shock and economic downturn and reserving deterioration based on increased
claims inflation.
Firms are also asked to quantify the expected impact on underwriting losses
associated with the economic downturn.

205. The second section captures the exposure of general insurers to sectors of the UK
economy. For both sections firms are required to provide their Solvency Capital Requirement(SCR) and Own Funds at the beginning of the year 2017 and the projected available Own
Funds on a best estimate basis together with the estimated SCR at the end of the year. Then,for each stress scenario, firms should quantify the impact on Own Funds at the end of 2017
including management actions and market adjustments as well as the direct impact of thestress. This information is gathered in a spreadsheet which was sent to the firms as part ofthe exercise to record their findings.
8.7.2.2 Transition Risk: Assessment of carbon exposure of UK insurers’ asset portfolios andalignment with 2D scenario
206. This activity revolves around interrogating the investment portfolio of regulated
insurers, assessing the ownership of different asset types and the underlying physical assets,
to gain an understanding of the nature, size and concentrations of transition risk in UK insurers’
portfolios. Using an R-model, the granular asset data of financial institutions (such as equity
and corporate bonds) is matched with asset level data in high-emission sectors (are fossil fuel,power and transportation) and then mapped against the International Energy Agency (IEA)
450 scenario. This enables the PRA to analyse how aligned (or misaligned) the firm’s portfolio
is with the 2-degree scenario and what the potential areas of risk are. The aim is to be able touse the analysis to inform the firms on the relative level of (mis-)alignment and potential areasof risk concentration.
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8.7.3

Key Findings

207. The analysis of the stress test results is expected to be published in 2018. However,the PRA expects the scenario will provide insight into the impact of climate risk on the UK
insurance industry. For example, the analysis will indicate the % capital eroded by the losses,
on an aggregated basis. It will also illuminate the impact of climate risk on individual’s firms.
For example, the analysis will indicate the % capital eroded by the losses for each firm or
syndicate, identifying firms most exposed to this particular scenario, and associatedmanagement actions anticipated by the firm. Finally, another example of output will be themapping of reinsurers, and identification of potential concentrations. The analysis will indicate
total reinsurance recoveries, associated firms and jurisdictions, and potential spiral effects.
208. The Transition Risk Study is also in process. The results will provide a scenario-based
view on what share of individual portfolios could be at risk from an abrupt transition. In
particular for each portfolio obtained, results on what share of them are exposed to highcarbon sectors and how much this differs from a 2 degrees portfolio. These results are thenaggregated to see how the totality of firms examined perform against a 2 degrees benchmark.
8.7.4

Lessons: Key Challenges and Areas for Improvement

209.

Key areas for improvement include:

•
•
•
•

Information and disclosure;
Improved analytical techniques to support the integration of environmental risks;Clarifying responsibilities to assess and manage environmental risks;
Promoting responsible investment and standards for “green investment”.

210. Regarding stress testing, the key challenge was to define a scenario which would beconsistent across all firms. For this reason, the scenarios had to be detailed enough so thatfirms would run the same events. In addition, these events test climate risk as it is today, they
do not yet anticipate what the climate will be like in a few years’ time. With the Asset Portfolio
Alignment Scenario, the main challenges faced were in modelling some of the asset classes
considered and a lack of data and granularity of scenarios for other high-emission sectors.
211. Firms in the industry are also limited by the capabilities provided to them by modellingcompanies which means that, for now, they can only model windstorm and flood events. They
are also able to calibrate event severity and frequencies; however, these would have to bejustified by science and, since event frequency is associated with large inherent uncertainty,
it is very challenging to define a relevant scenario.
212. When approaching stress testing projects, other supervisors would do well to liaise
with model developers in order to define consistent scenarios and liaise with academics todefine relevant event parameters (frequency, severity). Apply a proportional approach,
identifying the exposures of firms to various events (eg European windstorms, US hurricanes,
UK floods, etc), and focus the tests on events and territories with the most material impacts tothe specific firm.
8.7.5

Impacts on Supervisory Practice213. While these results are still pending, the findings of the earlier Climate Change
Adaptation Report were shared with PRA-regulated insurers, and they are expected toconsider the risks identified. In addition, the work carried out on capacity building is aimed atensuring that supervisors are aware of sustainability issues affecting the industry and areknowledgeable about how to manage them. This will be achieved through the provision ofIssues Paper on Climate Change Risks to the Insurance Sector
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practical materials such as supervisory toolkits as well as considering sustainability factors
within existing toolkits and models such as the ORSA. Specialised training for supervisors on
climate-related risks is also an idea which is being considered.
214. The PRA has also been involved in International and UK initiatives in order to address
the systemic risk posed by climate change such as:
•
•
•
•
8.7.6

Co-chairing the G20 Green Finance Study Group with the People’s Bank of China;
Closely following the work of the FSB’s TCFD;
Becoming a founding member of the SIF; andSupporting G20 activities at UK level by convening a joint regulatory forum (BoE, FCA,
TPR, FRC).
Next Steps

215. It is evident that climate change is becoming increasingly relevant to financial
regulation. For this reason, the PRA’s approach will focus on promoting resilience to climatechange and supporting an orderly financial sector transition to a lower carbon economy. The
PRA will do this through a combination of international collaboration, research, dialogue andsupervision.
216. The PRA has recently expanded its assessment to include the banking sector, whichclearly plays a different role within the financial sector, and which will face different challenges
and opportunities as a result. The assessment follows a similar approach as the insurancework. Although, this work is at an early stage it brings already relevant insights. It is observedthat by starting the dialogue with firms, via a survey and meetings, this encourages banks tothink about their strategic approach to climate-related risk. The PRA is also liaising with otherUK financial regulators, including the Financial Reporting Council, Financial Conduct Authority
and The Pensions Regulator.
217. The PRA is supportive of continuing the sharing of best practice as this emerges.
Moreover, it encourages the SIF’s development of analytical frameworks and tools for risk
analysis, and its work to overcome barriers around data and information.
8.8

USA: National Association of Insurance Commissioners (NAIC) 105

8.8.1

Motivation and Rationale

218. Within the United States, among state insurance regulators, there are a variety of views
on climate change. While some States have taken certain approaches, such as thosedescribed in sections 8.9 and 8.10, other States differ on the regulatory approach to manage
and mitigate catastrophe risks. The NAIC has undertaken work related to climate risk as
described below, but there is not an official NAIC policy on this issue nor has the NAIC
endorsed any particular approach taken by individual States or the IAIS.
219. The NAIC Climate Risk Disclosure Survey was created in 2009–10, to determine
whether insurers were incorporating climate change into their risk management andinvestment strategies. This was primarily in response to “The Potential Impact of Climate
Change on Insurance Regulation” white paper published by NAIC in 2008. 106 It is a multi-state,
joint regulatory action including states such as New York, Washington, Connecticut, New
Mexico, and Minnesota. The administration for the Survey is led by the California Department
of Insurance.

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8.8.2

Approach and Methodology

220. As of 2016 the Survey is comprised of eight qualitative questions regarding insurers’
responses to climate change.107 The survey was modelled on the CDP (formerly the Carbon
Disclosure Project) voluntary questionnaire, and cross references its questions.
221. Survey questions ask for summaries of current or anticipated risks that climate change
poses to the company, explanations of the ways that these risks could affect the insurer’sbusiness, and identification of the geographical areas affected by these risks.
222. Insurers are not required to submit quantitative information but may do so without
implying materiality. They are encouraged to provide quantitative information where it offers
additional clarity on trends in the intensity or attenuation of natural hazards, insured losses,
investment portfolio composition, policyholder risk reduction or improvements in computermodelling.
223. Insurers are encouraged to provide forward-looking information that will indicate therisks and opportunities insurers may face in the future; when provided, insurers may disclaim
any responsibility for the accuracy of such forward-looking information. Forward looking
information is assumed to have some degree of uncertainty; if provided, insurers are asked tooffer explanation on the degree and sources of uncertainty as well as assumptions employed.
224. Information is provided by firms that are subject to the Initiative on a mandatory andpublic basis in the participating state jurisdictions. This is decided on a threshold of US$100m
in direct written premiums in the previous financial year. Insurers writing less than US$100m
may complete the survey voluntarily.
8.8.3

Key Findings

225. The participating states use the results of the survey for a variety of supervisory
purposes. Additionally, Ceres (a non-profit organisation not associated with the NAIC)
analyses survey results and each year prepares reports highlighting trends and ranks
companies based on their responses to climate change. 108
8.8.4

Lessons: Key Challenges and Areas for Improvement226. As climate science progresses (ie when there is greater agreement between observed
data and models or when there is integration of catastrophe and climate models), insurers
should be able to provide quantitative information with less uncertainty. This will enable andmore effective and unified approach amongst insurers and regulators.
227. Subject to agreement by participating states, newly developed disclosure techniquesthat are ready for practical use, will be included in the survey project. These will address
relevant and non-redundant disclosures that are necessary based on newly developed
climate-related financial disclosure regimes. Furthermore, disclosure guidance materials will
be updated.
8.8.5

Impacts on Supervisory Practice228. Certain US state insurance departments, including California, have used the NAIC
Survey as a basis for further action. In California, the combination of the NAIC survey with
Climate Risk Carbon Initiative enable the California Department of Insurance (CDI) to compilea more holistic view of insurer’s perspectives, actions, and exposures to climate risk.
229. In addition, the CDI uses its routine financial examinations, its review of ORSA reports
by insurers, and the new Form F filings required under the NAIC Model Holding Company Act(pertaining to Enterprise Risk Reporting) to obtain information about insurers’ identification ofIssues Paper on Climate Change Risks to the Insurance Sector
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and responses to climate risk. The CDI learns from this data as it undertakes individual
financial examinations of insurers considering the risks they face.
8.8.6

Next Steps

230. The NAIC Climate Risk Disclosure Survey continues on an annual basis with theparticipating states. Additionally, the NAIC has a Climate Change and Global Warming
Working Group that is tasked with the following:
•
•
•
•
•

Review the enterprise risk management efforts by carriers and how they may beaffected by climate change and global warming;
Investigate and receive information regarding the use of modelling by carriers and theirreinsurers concerning climate change and global warming;
Review the impact of climate change and global warming on insurers throughpresentations by interested parties;
Investigate sustainability issues and solutions related to the insurance industry;
Review innovative insurer solutions to climate change, including new insurance
products through presentations by interested parties.

8.9

USA – California: California Department of Insurance

8.9.1

Motivation and Rationale

231. In January 2016, recognising the potential financial risks to insurer investments inthermal coal, oil, gas and utilities that rely on coal, oil and gas, California InsuranceCommissioner Dave Jones launched the Climate Risk Carbon Initiative (CRCI). The CRCI has
two main components:••

A request that California-licensed insurers voluntarily divest from thermal coalenterprises, applicable to all California-licensed insurers (CDI Thermal Coal
Divestment Request); andRequired financial disclosures by insurers of their investments in fossil fuel (thermalcoal, oil, gas, and utilities) enterprises through a survey or “data call”, which isapplicable to California-licensed insurers with 2015 direct written premiums equal to or
greater than US$100m nationwide (“CDI Fossil Fuel Data Call”).

232. Commissioner Jones considers his decision to ask insurers to divest from thermal coal,and to require insurers to disclose investments in the carbon economy, to arise from his
statutory responsibility to make sure that insurers address potential financial risks in thereserves they hold to pay future claims. Commissioner Jones perceives a significant risk thatfossil fuel use will become increasingly restricted and reduced, which in turn presents a risk to
the value of oil, gas and coal and utilities investments. Commissioner Jones considers it
important that financial institutions, including insurers, recognise and address potentiallysignificant climate risks facing their investments in coal, oil and gas and utilities.
8.9.2

Approach and Methodology

233. The CRCI is focused on transition risks, and is comprised of: 1. a voluntary call for
action, and 2. the introduction of a new public disclosure requirement.
8.9.2.1 Boundary conditions and Thresholds
234. For the purposes of the CDI Thermal Coal Divestment Request, thermal coalinvestments were defined as investments in companies that generate 30% or more of theirrevenue from ownership, exploration, mining, or refining of thermal coal, and from utilities that
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generate 30% or more of the energy they produce using thermal coal. “Thermal coal” wasdefined as lignite, bituminous coal with an ash percentage greater than 35%, and anthracite.
The Initiative applied to all California-licensed insurers regardless of premium size.
235. For the Fossil Fuel Data Call, oil and gas investments are defined as direct
investments, including publicly and privately traded securities that generate 50% or more of
their revenues from oil and gas. Investments into utilities included investments in utilities thatgenerate 30% or more of their electricity from thermal coal or utilities that generate 50% ormore of their electricity from fossil fuels, which included thermal coal, oil and natural gas. The
Initiative applied to California-licensed insurers with 2015 direct written premiums equal to or
greater than US$100m nationwide.
236. The CDI selected the 30% coal and 50% oil thresholds after reviewing a number of
disclosure metrics. After a review of greenhouse gas emission models, it was concluded thatat this time there remains a wide degree of variability in modelling results across models forthe same assets. Revenue thresholds were chosen as the metric for disclosure because of
the greater degree of consistency and certainty and availability of data with regard torevenues. The Department also determined that two European insurers: AXA Group andAllianz, use revenue based thresholds for determining what carbon assets to divest due toclimate related financial risk. Specifically, AXA policy states that AXA will divest and stop
investing in “mining companies and electric utilities deriving 50% of their turnover from coal”.
In November 2015, Allianz committed to “stop financing coal-based business models bydivesting equity stakes in coal-based business models as 1. mining companies deriving 30%
or more of their revenues from mining thermal coal, or 2. electric utilities deriving 30% or moretheir generated electricity from thermal coal”.
8.9.2.2 Data specification
237. The Climate Risk Carbon Initiative differs in that it is the first initiative that requires
quantitative investment-level disclosure of fossil fuel holdings by insurers. Level of detailrequired for responses included: investment identification (such as CUSIP), name/ description,
actual cost, fair value, book/adjusted carrying value, acquired date, stated contractual maturity
date, fossil fuel type sector (thermal coal, oil and gas, corporate owned utility, municipally
owned utility, or other), and percentage and amount of annual revenue enterprise derives per
fossil fuel type. Most other disclosure regimes are limited to qualitative disclosures and manyof them focus on carbon emissions.
8.9.3

Key Findings

238. When announced and implemented, the Thermal Coal Divestment Request and Fossil
Fuel Data Call were the first of their kind in the United States. Because of this fact, and since2016 was the inaugural year for the Climate Risk Carbon Initiative, the Department did nothave predetermined expectations of the exposure to fossil fuel investments of subject insurers.
The results have provided valuable insight that will constitute a benchmark to compare future
insurers’ fossil fuel investment exposure and a platform for related analyses.
239.
•

•

Key results of from the 2016 divestment request and data call include:
Insurers surveyed have US$528bn in fossil fuel related investments which includes
investments in coal, oil and gas and utilities that rely on coal, oil and gas to generate
electricity;
Insurers reported US$10.5bn in investments in thermal coal enterprises;

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•
•
•
•
•
•
8.9.4

Insurers have divested more than US$4bn from thermal coal and fossil fuelinvestments;
Insurers have committed to disposing of an additional US$1.2bn to US$1.4bn inthermal coal investments;
303 insurers reported have already analysed the risk of carbon investments in theirinvestment portfolio;
81 insurers have committed to analyse the risk of carbon investments in their portfolio
in the following 12 months;
670 insurers reported having divested some or all of their coal holdings, or had no coal
to divest;
325 insurers acknowledged that they would refrain from making future investments inthermal coal.
Lessons: Key Challenges and Areas for Improvement240. While some industry resistance was initially encountered, the Initiative resulted in
100% participation. The project would benefit from a number of broader nationwide actions,
including:
•
•

•

241.
•
•
•
8.9.5

Authoritative guidance on climate related financial reporting;
The existence of uniform public reporting of revenues and power generation mixes by
all enterprises, would facilitate the reporting and analysis of fossil fuel holdings of
insurers. If regulatory agencies such as the U.S. Securities Exchange Commission(SEC) required standardised reporting of revenue breakdown by all enterprises, andof power generation mixes for utility enterprises, the Department would be better
positioned to obtain a clearer picture of insurers fossil fuel exposure based on
previously stated thresholds. Regulators of fossil fuel industries – such as utility
regulators – could be encouraged to do more to ensure that utilities release informationon their energy mix;
This Initiative requires identification of fossil fuel assets and whether they meet certain
thresholds. Upon receipt of responses, the Department has to validate the data before
further analysis can be performed. Investment data from third party vendors are used
to perform this validation. Because, in the United States, no such vendor “covers” all
the investment market, the regulator would do well to use multiple data sources fromthird party providers.
Internally, the CRCI is also working to improve multiple factors:
Improved processes and methods to compile, sort, and analyse reported data;
Mechanisms to overcome data-related challenges;
Inclusion of newly developed disclosure techniques and metrics that are ready forpractical use.
Impacts on Supervisory Practice242. The majority of companies the CDI surveyed either have no thermal coal holdings,
have divested those holdings, or have committed to divest from thermal coal, which is apositive result. The initiative has provided a much better understanding of the degree of insurer
investments in fossil fuels generally, and more detailed information about each companies'

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level of investment in carbon. The Department will continue to monitor developments in climate
risk and the global economy in an effort to identify and possibly integrate best practices.
243. Supervisors would do well to firmly implement climate-related financial disclosure
initiatives in conformity with their jurisdictional mandates. They should make good use ofrecommendations by the TCFD and other similar disclosure regimes and should also
contribute to dialogue regarding the development of disclosure standards.
8.9.6

Next Steps

244. In 2018, the CDI updated its methodology for evaluating fossil fuel investments byincorporating the TCFD recommendations. In particular, the CDI has incorporated scenario
analysis into its efforts by engaging 2 Degrees Investing Initiative to conduct this analysis for
insurers operating in California with over $100m in annual premiums. In addition to publishingaggregate data, individual insurer reports are being sent to the top 100 insurers (by size of
their investment portfolio) operating in California with over $100m in annual premiums. This
represents over 80 percent of the assets that were analysed. Additionally, building on
Commissioner Dave Jones’ directive to divest from holdings of thermal coal, reports will besent to insurers outside of the top 100 whose exposure to thermal coal production or coal-fired
electricity capacity is beyond the 95% percentile of exposure for all insurers in thesetechnologies. Finally, insurers that are not in either group can request a copy of their individual
insurer reports. These reports will explain the methodology and data that was used in theanalysis, where the individual insurer ranks among its peers and which securities arenegatively impacting their investment portfolios. The results of the scenario analysis further
show that thermal coal presents long-term financial risks despite any short-term fluctuations
in market price.
8.10

USA – Washington State: Office of the Insurance Commissioner (OIC)

8.10.1 Motivation and Rationale
245. In 2016, insured losses from natural disasters in the United States totalled almost
US$24bn. Residents of Washington State have been impacted by natural disasters such as
floods, landslides, wildfires, and earthquakes and continue to be at risk for these and othernatural disasters. On March 22 2014, a major landslide occurred 4 miles east of Oso,
Washington. A portion of unstable hill collapsed, sending mud and debris to the south acrossthe North Fork of the Stillaguamish River, engulfing a rural neighbourhood and covering an
area of approximately 1 square mile. Forth-three people were killed and 49 homes and otherstructures destroyed.
246. In 2015, the state’s wildfire season was the largest in state history, burning more than
one million acres and costing more than US$253m dollars. In 2016, almost two hundred
ninety-four thousand acres burned in the state and there were more than four hundred thirty
national flood insurance program (NFIP) claims filed, totalling over US$7m dollars.
247. As Washington State’s Insurance Commissioner, and Chair of the NAIC Climate
Change and Global Warming Working Group, Commissioner Kreidler has expressed the need
to better prepare the state for disasters and put in place strategies to mitigate the impact ofdisasters that are occurring more frequently and with increased impacts.
8.10.2 Approach and Methodology
248.

To better prepare on a national and state level, the OIC is pursuing efforts to:

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•
•
•

•

•

Urge participation of other states in the annual NAIC Climate Risk Disclosure Survey
requiring insurers report on risks faced from climate change and steps taken in
response;
Continue to raise the profile of climate change and disaster resiliency and risk
mitigation through the annual NAIC survey as well as the OIC’s biennial climate andresiliency summit;
Urge participation of the insurance industry in the state’s building code council.
Washington State establishes its building code requirements based upon theInternational Building Code (IBC). The state code is revised and updated every three
years;
Partner with the Washington State Governor’s office and other state agencies to
identify resiliency needs and implement those related to insurance. In 2017, the OIC
partnered with the Governor Inslee’s Resilient Washington Subcabinet effort. The OIC
led the task force to identify earthquake insurance. The Resilient Washington work led
the OIC to identify opportunities for legislation;
Assess the need for improving earthquake insurance affordability, mitigation efforts,
and take up rate in the state through initiating a data call to insurers and issuing areport on findings.

249. Now, the OIC is moving forward with legislation to support insurer’s efforts in risk
mitigation by allowing homeowner’s insurers to provide goods and services intended to reduce
either the probability of loss, or the extent of loss, or both, from a covered event. In addition,
the OIC will create a work group that will review disaster mitigation and preparation projects
in other states and those currently being done in this state and make recommendations for
how this state’s efforts to mitigate the impacts of natural disasters can be expanded andcoordinated and whether or not an ongoing disaster resiliency program should be created.
8.10.3 Key Findings
250. According to FEMA (Federal Emergency Management Agency), there is no more
important factor in reducing a community’s risk from an earthquake than the adoption andenforcement of up-to-date building codes and retrofitting older buildings is considered criticalin building resiliency.
••••

Federal, state, county and city governments regulate growth and development via
laws;
Municipal land-use laws begin with planning and results in regulation, including zoning;
Zoning regulates and restricts property use by a local government and is the mostcommon form of land-use regulation. Zoning helps separate districts by use;
Washington State’s Growth Management Act (GMA) requires state and local
governments create land use methods to prevent uncoordinated and unplanned
growth.

251. In the 2017 partnering with the Governor Inslee’s Resilient Washington Subcabinet
effort, the OIC led the task force to identify earthquake insurance options and recommended
the following action: improving consumer earthquake preparedness through increased
earthquake insurance education and take up rate, mitigation efforts, financial incentives andimproved affordability. An outcome of the Resilient Washington work identified a need forreview of earthquake insurance in the state.
8.10.4 Lessons: Key Challenges and Areas for Improvement252.

Key challenges identified by the OIC in its work include:

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•••Obtaining support from insurers to participate in resiliency and risk mitigation efforts;
Passing legislation;
Staff and resource limitations.

8.10.5 Impacts on Supervisory Practice
253.
•
•
•
•

Key impacts on supervisory practice identified by the OIC include:
Taking action to identify methods of improving consumer earthquake preparedness
through increased earthquake insurance education and take up rate, mitigation efforts,financial incentives and improved affordability;
Moving forward on legislation;
Practices for rate and form filings will be implemented for risk mitigation legislation;
Implementation of a possible ongoing disaster resiliency program will be considered.

8.10.6 Next Steps
254. The report on findings of the 2017 earthquake insurance data call will be issued
January 2018. Actions will result from report. Legislation on risk mitigation and disaster
resiliency is planned for passage in spring 2018. Finally, Commissioner Kreidler is hosting thebiennial Resiliency Summit in October 2018.

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9Conclusions

255. Climate risks present significant material challenges for the insurance sector, which
are likely to grow over time. Insurers play a critical role in the resilience of households, firms,
and corporate sectors to physical climate risks, which will become even more important in the
future as impacts begin to manifest with greater intensity. Through their underwriting andinvestment activities, insurers are also exposed to the broad range of physical and transition
risks that may arise from climate change. This may affect their capacity to write insurance
business and pay claims. The availability of insurance will hold important implications for theevolution, speed, and smoothness of the low-carbon transition – posing important strategic
challenges for business models. Finally, insurers are critical to the resilience of the broader
financial sector to climate impacts. All of these factors create an urgent imperative to consider
the resilience of insurers to climate risks.
256. Certain insurers are actively seeking to build their resilience to climate change, and tocontribute to broader resilience of households, businesses, and governments to climate risks,through risk mitigation, risk transfer and investment activities. Other insurers are not actively
seeking to enhance their resilience to climate change, and may face challenges in doing so,
in part due to the complexity of such an undertaking. Because of the dynamic, complex, andglobal impacts of climate change across the economy and society, it is likely that all insurance
businesses will be directly or indirectly affected by climate risks over the long term. In thiscontext, it is imperative that all insurers consider their exposure to climate risks, regardless of
size, specialty, domicile, or geographic reach, and seek to build resilience to such risks whereappropriate.
257. There is an increasing consensus across the financial sector that the potential systemic
impacts of climate change require a similarly systemic global response, exemplified by workat the international level by the G20 and the FSB. These developments create a strategic
imperative for the IAIS and its members to consider the supervisory dimensions of climatechange.
258. Many insurance supervisors have recognised the importance of their role in addressing
climate risks, in line with their mandates to ensure the safety and soundness of firms and theinsurance sector as a whole. However, there is a diversity of views, priorities, and strategies
among members of the SIF – many of which are more advanced on the climate risk challenge.
Similarly, there is a broad range of experience and familiarity with climate risk issues acrossthe membership of the IAIS. As many of these efforts are still new, information sharing andcooperation – including with other financial regulators – can be beneficial.
259. It is evident that climate risks warrant ongoing and intensifying scrutiny by supervisors.
While the ICPs do not explicitly address climate change, the terms of the principle statements
and accompanying standards and guidance encompass many dimensions of the issues
presented by climate risks. In this respect, the ICPs provide a general basis for theidentification, assessment, and supervision of climate risks within the insurance sector.
260. Going forward, insurance supervisors should seek to increase their understanding ofclimate risk, and develop supervisory capabilities to be able to accurately evaluate theinsurance sector’s actions to achieve climate resilience, across underwriting and investment
activities. The IAIS will seek to monitor initiatives and issues related to climate risk as they
continue to evolve, including with the support of the SIF. Additional supporting material fromthe IAIS and the SIF on best practices for addressing climate risk issues in line with the ICPs
may be helpful for supervisors and insurers. In this regard, there is merit in considering
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whether and how this Issues Paper can be followed-up by one or more Application Papers tofurther explore these topics.

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Annex: Recommendations of the FSB TCFD
Table A1.1: Governance
Recommended
Disclosure

Guidance for all sectorsa) Describe theboard’s oversightof climate-relatedrisks andopportunities.

In describing the board’s oversight of climaterelated issues, organisations should consider
including a discussion of the following:

Supplemental Guidance for
Insurers and Asset Owners‒ processes and frequency by which the board
and/or board committees (eg audit, risk, orother committees) are informed about climaterelated issues,‒ whether the board and/or board committees
consider climate-related issues when reviewing
and guiding strategy, major plans of action, risk
management policies, annual budgets, andbusiness plans as well as setting theorganisation’s performance objectives,
monitoring implementation and performance,and overseeing major capital expenditures,acquisitions, and divestitures, and‒ how the board monitors and oversees
progress against goals and targets foraddressing climate-related issues.

b) Describe
management’s
role in assessing
and managing
climate-relatedrisks andopportunities.

In describing management’s role related to theassessment and management of climaterelated issues, organisations should consider
including the following information:‒ whether the organisation has assigned
climate-related responsibilities to managementlevel positions or committees; and, if so,whether such management positions orcommittees report to the board or a committeeof the board and whether those responsibilities
include assessing and/or managing climaterelated issues,‒ a description of the associated organisational
structure(s),‒ processes by which management is informed
about climate-related issues, and‒ how management (through specific positions
and/or management committees) monitors
climate-related issues.

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Table A1.2: Strategy
Recommended
Disclosure

Guidance for all sectorsa) Describe theclimate- relatedrisks andopportunities theorganisation has
identified over the
short, medium,and long term.

Organisations should provide the following
information:

Supplemental Guidance for
Insurers and Asset Owners‒ a description of what they consider to be
the relevant short-, medium-, and longterm horizons, taking into consideration
the useful life of the organisation’s assets
or infrastructure and the fact that climaterelated issues often manifest themselves
over the medium and longer terms,‒ specific climate-related issues for eachtime horizon (short, medium, and longterm) that could have a material financial
impact on the organisation and distinguishwhether the climate-related risks aretransition or physical risks, and‒ a description of the process(es) used todetermine which risks and opportunities
could have a material financial impact on
the organisation.
Organisations should consider providing adescription of their risks and opportunities
by sector and/or geography, as
appropriate. In describing climate-related
issues, organisations should refer toTables A1 and A2 (pp. 72-73).

b) Describe theimpact of climaterelated risks andopportunities on
the organisation’s
businesses,
strategy, andfinancial planning.

Building on recommended disclosure (a),organisations should discuss how
identified climate-related issues haveaffected their businesses, strategy, andfinancial planning.
Organisations should consider including
the impact on their businesses andstrategy in the following areas:
Products and services‒ Supply chain and/or value chain‒ Adaptation and mitigation activities‒ Investment in research and development‒ Operations (including types of operations
and location of facilities)
Organisations should describe how
climate-related issues serve as an input totheir financial planning process, the time
period(s) used, and how these risks andopportunities are prioritised. Organisations’Insurers should describe thepotential impacts of climaterelated risks and opportunities,
as well as provide supporting
quantitative information whereavailable, on their corebusinesses, products, andservices, including:‒ information at the businessdivision, sector, or geography
levels;‒ how the potential impacts
influence client, cedent, or broker
selection; and‒ whether specific climaterelated products or competencies
are under development, such as
insurance of green infrastructure,
specialty climate- related risk
advisory services, and climaterelated client engagement.

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disclosures should reflect a holistic pictureof the interdependencies among thefactors that affect their ability to create
value over time. Organisations should also
consider including in their disclosures theimpact on financial planning in thefollowing areas:‒ Operating costs and revenues‒ Capital expenditures and capital
allocation

Asset owners should describe
how climate-related risks andopportunities are factored into
relevant investment strategies.
This could be described from theperspective of the total fund orinvestment strategy or individual
investment strategies for various
asset classes.

‒ Acquisitions or divestments‒ Access to capital
If climate-related scenarios were used to
inform the organisation’s strategy andfinancial planning, such scenarios should
be described.
c) Describe theresilience of theorganisation’s
strategy, taking
into considerationdifferent climaterelated scenarios,
including a 2°C or
lower scenario.

Organisations should describe how
resilient their strategies are to climaterelated risks and opportunities, taking into
consideration a transition to a lowercarbon economy consistent with a 2°C or
lower scenario and, where relevant to theorganisation, scenarios consistent withincreased physical climate-related risks.
Organisations should consider discussing:‒ where they believe their strategies may
be affected by climate-related risks andopportunities;‒ how their strategies might change toaddress such potential risks andopportunities; and‒ the climate-related scenarios andassociated time horizon(s) considered.
Refer to section D in the Task Force’s
report for information on applying
scenarios to forward-looking analysis.

Insurers that perform climaterelated scenario analysis on theirunderwriting activities should
provide the following information:‒ description of the climaterelated scenarios used, including
the critical input parameters,
assumptions and considerations,and analytical choices. In
addition to a 2°C scenario,
insurers with substantial
exposure to weather- related
perils should consider using agreater than 2°C scenario toaccount for physical effects ofclimate change and‒ time frames used for the
climate-related scenarios,
including short-, medium-, andlong-term milestones.
Asset owners that perform
scenario analysis should
consider providing a discussionof how climate-related scenarios
are used, such as to inform
investments in specific assets.

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Table A1.3: Risk Management
Recommended
Disclosure

Guidance for all sectors

Supplemental Guidance for
Insurers and Asset Ownersa) Describe theorganisation’s
processes for
identifying andassessingclimate- relatedrisks.

Organisations should describe their risk
management processes for identifying andassessing climate-related risks. An
important aspect of this description is howorganisations determine the relative
significance of climate-related risks inrelation to other risks.

Insurers should describe theprocesses for identifying andassessing climate-related risks
on re-/insurance portfolios bygeography, business division, or
product segments, including thefollowing risks:

Organisations should describe whether
they consider existing and emerging
regulatory requirements related to climatechange (eg limits on emissions) as well asother relevant factors considered.

‒ physical risks from changing
frequencies and intensities ofweather-related perils,

Organisations should also consider
disclosing the following:‒ processes for assessing the potential
size and scope of identified climate-relatedrisks and‒ definitions of risk terminology used orreferences to existing risk classification
frameworks used.

‒ transition risks resulting from a
reduction in insurable interest
due to a decline in value,changing energy costs, or
implementation of carbon
regulation, and‒ liability risks that could intensify
due to a possible increase inlitigation.
Asset owners should describe,
where appropriate, engagement
activity with investee companies
to encourage better disclosure
and practices related to climaterelated risks to improve data
availability and asset owners’ability to assess climate-relatedrisks.

b) Describe theorganisation’s
processes for
managing
climate- relatedrisks.

Organisations should describe theirprocesses for managing climate-relatedrisks, including how they make decisions
to mitigate, transfer, accept, or control
those risks. In addition, organisations
should describe their processes forprioritising climate- related risks, including
how materiality determinations are madewithin their organisations.
In describing their processes for managing
climate-related risks, organisations should
address the risks included in Tables A1
and A2 (pp. 72-73), as appropriate.

Insurers should describe key
tools or instruments, such as risk
models, used to manage climaterelated risks in relation to productdevelopment and pricing.
Insurers should also describe therange of climate-related events
considered and how the risks
generated by the risingpropensity and severity of such
events are managed.
Asset owners should describe
how they consider the positioningof their total portfolio with respect
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use. This could include
explaining how asset owners
actively manage their portfolios’
positioning in relation to thistransition.
c) Describe how
processes for
identifying,assessing, andmanaging
climate-relatedrisks areintegrated into theorganisation’s
overall risk
management.

Organisations should describe how theirprocesses for identifying, assessing, andmanaging climate-related risks areintegrated into their overall risk
management.

Table A1.4: Metrics and Targets
Recommended
Disclosure

Guidance for all sectors

Supplemental Guidance for
Insurers and Asset Ownersa) Disclose themetrics used by
the organisation
to assess climaterelated risks andopportunities inline with its
strategy and risk
management
process.

Organisations should provide the key
metrics used to measure and manage
climate- related risks and opportunities, as
described in Tables A1 and A2 (pp. 7273). Organisations should consider
including metrics on climate-related risks
associated with water, energy, land use,
and waste management where relevant
and applicable.

Insurers should provide
aggregated risk exposure to
weather-related catastrophes of
their property business (ie,annual aggregated expected
losses from weather-related
catastrophes) by relevant
jurisdiction.

Where climate-related issues are material,organisations should consider describing
whether and how related performance
metrics are incorporated into remuneration
policies.
Where relevant, organisations should
provide their internal carbon prices as well
as climate-related opportunity metrics
such as revenue from products andservices designed for a lower-carbon
economy.
Metrics should be provided for historicalperiods to allow for trend analysis. In
addition, where not apparent,
organisations should provide a descriptionof the methodologies used to calculate or
estimate climate-related metrics.

b) Disclose
Scope 1, Scope2, and, if

Organisations should provide their Scope
1 and Scope 2 GHG emissions and, if

Asset owners should describe
metrics used to assess climaterelated risks and opportunities ineach fund or investment strategy.
Where relevant, asset owners
should also describe how these
metrics have changed over time.
Where appropriate, asset owners
should provide metrics
considered in investment
decisions and monitoring.

Asset owners should provide theweighted average carbon
intensity, where data are

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appropriate,
Scope 3greenhouse gas(GHG) emissions,and the relatedrisks.

appropriate, Scope 3 GHG emissions andthe related risks.
GHG emissions should be calculated inline with the GHG Protocol methodology toallow for aggregation and comparability
across organisations and jurisdictions. As
appropriate, organisations should consider
providing related, generally acceptedindustry-specific GHG efficiency ratios.
GHG emissions and associated metrics
should be provided for historical periods toallow for trend analysis. In addition, where
not apparent, organisations should provide
a description of the methodologies used to
calculate or estimate the metrics.

c) Describe thetargets used by
the organisation
to manage
climate- relatedrisks andopportunities andperformanceagainst targets.

available or can be reasonably
estimated, for each fund orinvestment strategy.
In addition, asset owners should
provide other metrics they
believe are useful for decision
making along with a descriptionof the methodology used. See
Table 2 (p. 43) for common
carbon footprinting and exposure
metrics, including weighted
average carbon intensity.

Organisations should describe their key
climate-related targets such as thoserelated to GHG emissions, water usage,
energy usage, etc., in line with anticipatedregulatory requirements or market
constraints or other goals. Other goals
may include efficiency or financial goals,
financial loss tolerances, avoided GHG
emissions through the entire product life
cycle, or net revenue goals for products
and services designed for a lower- carbon
economy.
In describing their targets, organisations
should consider including the following: ‒whether the target is absolute or intensity
based,‒ time frames over which the target
applies,‒ base year from which progress ismeasured, and‒ key performance indicators used toassess progress against targets.
Where not apparent, organisations should
provide a description of the methodologies
used to calculate targets and measures.

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Endnotes

1 http://unfccc.int/paris_agreement/items/9485.php

2 http://unepinquiry.org/g20greenfinancerepositoryeng/

https://ec.europa.eu/clima/news/sustainable-finance-commissions-action-plan-greener-and-cleanereconomy_en
4 http://unepinquiry.org/publication/inquiry-global-report-the-financial-system-we-need/
5 http://unepinquiry.org/wp-content/uploads/2018/04/Making_Waves.pdf
6 http://unepinquiry.org/wp-content/uploads/2018/04/Greening_the_Rules_of_the_Game.pdf
7
http://unepinquiry.org/wpcontent/uploads/2017/11/Roadmap_for_a_Sustainable_Financial_System.pdf
8 www.sustainableinsuranceforum.org
9 http://unepinquiry.org/wp-content/uploads/2017/07/SIF_TCFD_Statement_July_2017.pdf
10 https://www.ipcc.ch/pdf/assessment-report/ar5/syr/AR5_SYR_FINAL_SPM.pdf
11 https://www.ipcc.ch/pdf/assessment-report/ar5/syr/AR5_SYR_FINAL_SPM.pdf
12 https://climate.nasa.gov/
13 https://www.earth-syst-sci-data.net/8/605/2016/14 https://www.carbonbrief.org/what-global-co2-emissions-2016-mean-climate-change
15 https://climate.nasa.gov/
16 https://www.nasa.gov/press-release/nasa-noaa-data-show-2016-warmest-year-on-record-globally
17 https://www.giss.nasa.gov/research/news/20180118/
18 www.wmo.int/pages/prog/drr/transfer/2014.06.12-WMO1123_Atlas_120614.pdf
19 https://eciu.net/assets/Reports/ECIU_Climate_Attribution-report-Dec-2017.pdf
20 https://www.sciencedirect.com/science/article/pii/S2212094715300347#f0010
21 https://www.ipcc.ch/pdf/special-reports/srex/SREX-Chap3_FINAL.pdf
22 https://link.springer.com/article/10.1007/S00382-013-1713-0
23 https://www.ssec.wisc.edu/~kossin/articles/nature13278.pdf
24 http://m.pnas.org/content/114/19/4881
25 https://onlinelibrary.wiley.com/doi/epdf/10.1002/wcc.380
26 https://www.imf.org/~/media/Files/Publications/WEO/2017/October/pdf/analytical-chapters/c3.ashx
27 https://sealevel.nasa.gov/understanding-sea-level/projections/empirical-projections
28 https://climate.nasa.gov/vital-signs/arctic-sea-ice/29
http://www.conservation.org/publications/Documents/CI_Five-Effects-of-Climate-Change-on-theOcean.pdf
30
https://www.lloyds.com/news-and-insight/risk-insight/library/natural-environment/catastrophemodelling-and-climate-change
31 http://science.sciencemag.org/content/348/6234/571
32 https://www.carbonbrief.org/climate-change-threatens-one-in-six-species-with-extinction-study-finds
33 https://www.nature.com/articles/srep39666
34 http://www.internal-displacement.org/assets/library/Media/201507-globalEstimates-2015/20150713global-estimates-2015-en-v1.pdf
35 http://www.internal-displacement.org/global-report/grid2017/336

http://www.rollbackmalaria.org/files/files/about/SDGs/RBM_Climate_Change_Fact%20Sheet_170915.
pdf
37 http://www.apra.gov.au/Speeches/Documents/CPD%20Speech%2029Nov2017.pdf
38 http://www.bankofengland.co.uk/research/Documents/workingpapers/2016/swp603.pdf
39
http://www.climateinstitute.org.au/verve/_resources/TCI-There-goes-the-neighbourhood-FINAL300516.pdf
40 https://www.munichre.com/topics-online/en/2018/topics-geo/topics-geo-2017
41 https://www.munichre.com/topics-online/en/2018/topics-geo/topics-geo-2017
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http://thoughtleadership.aonbenfield.com/Documents/20180124-ab-if-annual-report-weatherclimate-2017.pdf
43 https://www.munichre.com/topics-online/en/2018/topics-geo/topics-geo-2017
44 https://www.insurancejournal.com/news/west/2017/12/06/473364.htm
45https://www.irena.org//media/Files/IRENA/Agency/Publication/2018/Jan/IRENA_2017_Power_Costs_2018.pdf
46 http://columbiaclimatelaw.com/files/2017/05/Burger-Gundlach-2017-05-UN-Envt-CC-Litigation.pdf
47 City of New York v. BP (S.D.N.Y., Docket No. 1:18-cv-00182).
48 Comment received during public consultation on the draft Issues paper.
49 Comment received during public consultation on the draft Issues paper.
50 http://institute.swissre.com/research/library/Global_insurance_review_2017.html
42

51 https://gofossilfree.org/

52 https://unfriendcoal.com/
53

https://www.spratings.com/documents/20184/1634005/How+Environ+And+Climate+Risks+and+Opps+Factor+Into_FINALv2/309db7c5-6b4e-4aa6-bd22-004cb47f5877
54 https://www.moodys.com/research/Moodys-Climate-change-heightens-key-risks-for-PC-insurancereinsurance--PR_380898
55 https://www.iaisweb.org/file/72345/iais-global-insurance-market-report
56 http://www.oecd.org/daf/fin/insurance/Global-Insurance-Market-Trends-2017.pdf
57 Remarks by AXA CEO Thomas Buberl at the One Planet Summit in Paris, 12 December 201758 http://unctad.org/en/PublicationsLibrary/rmt2017_en.pdf
59 http://www.actuaries.org/CTTEES_ENVIRO/Papers/REWG_CCandMortality_final_Nov2017.pdf
60 https://www.actuaries.org.uk/documents/mortality-report61
http://www.bloomberg.com/news/articles/2016-07-11/fossil-fuel-industry-risks-losing-33-trillion-toclimate-change
62 https://www.nature.com/articles/s41558-018-0182-1
63
https://www.lloyds.com/news-and-risk-insight/risk-reports/library/society-and-security/strandedassets
64 https://www.moodys.com/research/Moodys-Climate-change-heightens-key-risks-for-PC-insurancereinsurance--PR_380898
65 http://unepfi.org/pdc/wp-content/uploads/StormAlert.pdf
66
https://www.moodys.com/research/Moodys-sets-out-approach-to-assessing-the-credit-impact-of-PR_357629?WT.mc_id=AM~RmluYW56ZW4ubmV0X1JTQl9SYXRpbmdzX05ld3NfTm9fVHJhbnNsY
XRpb25z~20161107_PR_357629
67
http://www.businessinsurance.com/article/20171129/NEWS06/912317523/Public-sector-climaterisks-growing-Moodys
68 https://www.dnb.nl/en/binaries/Waterproof_tcm47-363851.pdf?2017110615
69
https://www.genevaassociation.org/research-topics/extreme-events-and-climate-risk/stakeholderlandscape-extreme-events-and-climate70
https://www.genevaassociation.org/sites/default/files/research-topics-documenttype/pdf_public//climate_change_and_the_insurance_industry__taking_action_as_risk_managers_and_investors.pdf
71
http://aodproject.net/wp-content/uploads/2016/07/AODP-GCI-2016_INSURANCE-SECTORANALYSIS_FINAL_VIEW.pdf
72
https://aodproject.net/wp-content/uploads/2018/05/AODP-Got-It-Covered-Insurance-Report2018.pdf
73
https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-ofclimate-change-on-the-uk-insurancesector.pdf?la=en&hash=EF9FE0FF9AEC940A2BA722324902FFBA49A5A29A
74 http://427mt.com/wp-content/uploads/2018/05/EBRD-GCECA_final_report.pdf
75 https://ec.europa.eu/info/law/better-regulation/initiatives/com-2018-353_en
76 http://unepinquiry.org/publication/the-financial-system-we-need-from-momentum-to-transformation/
77 http://unepinquiry.org/wp-content/uploads/2017/07/Green_Finance_Progress_Report_2017.pdf
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http://www.bis.org/fsi/publ/insights2.htm
resp.
https://www.iaisweb.org/page/supervisorymaterial/issues-papers/file/61857/issues-paper-on-cyber-risk-to-the-insurance-sector
79 https://www.cepweb.org/wp-content/uploads/2017/12/Campiglio-paper.pdf
80
See
the
IAIS
Report« FinTech
DevelopmentsintheInsurance
Industry;
https://www.iaisweb.org/page/supervisory-material/other-supervisory-papers-andreports/file/65440/report-on-fintech-developments-in-the-insurance-industry
81 http://unepinquiry.org/wp-content/uploads/2017/07/SIF_TCFD_Statement_July_2017.pdf
82 https://www.fsb-tcfd.org/publications/final-technical-supplement/
83 https://www.dnb.nl/en/binaries/Waterproof_tcm47-363851.pdf?2017110615
78

84

http://www.fi.se/contentassets/123efb8f00f34f4cab1b0b1e17cb0bf4/finansiella_foretags_hallbarhetsar
bete_eng.pdf
85 http://www.apra.gov.au/Speeches/Pages/The-weight-of-money.aspx
86
https://www.ceres.org/resources/reports/assets-or-liabilities-fossil-fuel-investments-leading-usinsurers
87 Going forward, the SIF may seek to develop guidance on questions relating to climate change risks.
88
https://www.bankofengland.co.uk/prudential-regulation/letter/2017/general-insurance-stress-test2017-feedback
89 https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/a-transition-in-thinking-and-actionspeech-by-mark-carney.pdf
90 https://www.insurance.ca.gov/0400-news/0100-press-releases/2018/release051-18.cfm
91 https://interactive.web.insurance.ca.gov/apex_extprd/f?p=250:70
92 http://www.apra.gov.au/Speeches/Pages/Australias-new-horizon.aspx
93 http://www.susep.gov.br/setores-susep/noticias/noticias/lancamento-do-relatorio-do-i-questionariode-sustentabilidade-em-seguros-susep-2013-2016
94 http://www.labinovacaofinanceira.com
95 http://www.novethic.fr/fileadmin//user_upload/tx_ausynovethicetudes/pdf_complets/173-nuance-dereporting_web.pdf
96 https://www.dnb.nl/en/binaries/Annual%20report%20DNB%202016_tcm47-356008.PDF
97 https://www.dnb.nl/en/binaries/tt_tcm47-338545.pdf
98 https://www.dnb.nl/en/binaries/Waterproof_tcm47-363851.pdf?2017100511
99 https://www.dnb.nl/en/binaries/Waterproof_tcm47-363851.pdf?2017100511
100 https://www.dnb.nl/en/about-dnb/co-operation/platform-voor-duurzame-financiering/
101 https://www.dnb.nl/en/binaries/tt_tcm47-338545.pdf
102
https://www.dnb.nl/en/binaries/Supervisory%20Strategy%202018-2022_tcm47365943.pdf?2018011113
103 http://www.bankofengland.co.uk/pra/Documents/supervision/activities/climate210916.pdf
104 http://www.bankofengland.co.uk/pages/climatechange.aspx
105 This case study was provided by the California Department of Insurance, which coordinates thesurvey and publishes the results on its Departmental website.
106 http://www.naic.org/cipr_topics/topic_climate_risk_disclosure.ht
107
http://www.insurance.ca.gov/0250-insurers/0300-insurers/0100applications/ClimateSurvey/upload/GUIDELINES-CLIMATE-RISK-SURVEY-REPORTING-YEAR2016-2.pdf
108 https://www.ceres.org/resources/reports/insurer-climate-risk-disclosure-survey-report-scorecard

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