Insurance Supervision and 

Regulation of Climate-Related Risks

Federal Insurance Oce,

U.S. Department of the Treasury

June 2023
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TABLE OF CONTENTS

I. INTRODUCTION AND SUMMARY OF RECOMMENDATIONS.............................1

II. U.S. INSURANCE SUPERVISION AND REGULATION OF CLIMATERELATED RISKS............................................................................................................7

Climate-Related Risks and Insurance ............................................................................7

The Roles of the States, the NAIC, and FIO................................................................12

Analysis of U.S. Climate-Related Insurance Supervision and Regulation..................13

Prudential Supervision and Regulation ..................................................................15

Macroprudential Supervision and Regulation........................................................33

Market Conduct Supervision and Regulation ........................................................44

Disclosure Initiatives..............................................................................................49

III. ADDITIONAL FIO CLIMATE-RELATED PRIORITIES...........................................56

Assessing Climate-Related Market Disruptions..........................................................56

Analyzing the Potential Transition Exposure of Insurers............................................58

Reviewing Protection Gaps..........................................................................................60

Facilitating Disaster Mitigation and Resilience...........................................................61

Increasing Engagement................................................................................................64

IV. CONCLUSIONS AND NEXT STEPS ..........................................................................68
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GLOSSARY

CID ........ Connecticut Insurance Department

CID Climate Guidance 

for CT Insurers

........ CID, Bulletin No. FS-44 (September 15, 2022)

Climate Risk RFI ........ Federal Insurance Office Request for Information on the 

Insurance Sector and Climate-Related Financial Risks, 86 Fed. 

Reg. 48,814 (August 31, 2021)

Disclosure Initiatives ........ The four disclosure initiatives discussed in this Report: CID 

Climate Guidance for CT Insurers, NAIC Climate Risk 

Disclosure Survey, NYSDFS Climate Guidance for NY Insurers, 

and TCFD Framework

ERM ........ Enterprise Risk Management

Examiners Handbook ........ NAIC, Financial Condition Examiners Handbook (2022) 

Executive Order 14030 ........ Executive Order 14030 on Climate-Related Financial Risk, 86

Fed. Reg. 27,967 (May 25, 2021)

FAIR Plan ........ Fair Access to Insurance Requirements Plan

Federal Reserve ........ Board of Governors of the Federal Reserve System

FEMA ........ Federal Emergency Management Agency

Financial Analysis 

Handbook

........ NAIC, Financial Analysis Handbook Annual 2022/Quarterly 

2023 (2023)

FIO ........ Federal Insurance Office

FLEC ........ Financial Literacy and Education Commission

FSOC ........ Financial Stability Oversight Council

FSOC Climate Report ........ FSOC, Report on Climate-Related Financial Risk 2021 (October 

21, 2021)

GCC ........ Group Capital Calculation

GHG ........ Greenhouse Gas

IAIS ........ International Association of Insurance Supervisors

ICPs ........ Insurance Core Principles

IPPC ........ Insurance and Private Pensions Committee of the Organisation 

for Economic Co-Operation and Development

LIGA ........ Louisiana Insurance Guaranty Association

MitFLG ........ Mitigation Framework Leadership Group

NAIC ........ National Association of Insurance Commissioners

NGFS ........ Network of Central Banks and Supervisors for Greening the 

Financial System

NYSDFS ........ New York State Department of Financial Services
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NYSDFS Climate 

Guidance for NY 

Insurers

........ NYSDFS, Guidance for New York Domestic Insurers on 

Managing the Financial Risks from Climate Change (November 

2021)

ORSA ........ Own Risk and Solvency Assessment

ORSA Guidance 

Manual

........ NAIC, NAIC Own Risk and Solvency Assessment (ORSA) 

Guidance Manual

ORSA Model Act ........ Risk Management and Own Risk and Solvency Assessment 

Model Act (NAIC 2012)

ORSA Summary Report ........ Confidential high-level summary of an insurer or insurance 

group’s ORSA

P&C ........ Property and Casualty

PACTA ........ Paris Agreement Capital Transition Assessment

RBC ........ Risk-Based Capital

Report ........ FIO, Insurance Supervision and Regulation of Climate-Related 

Risks (June 2023)

SEC ........ U.S. Securities and Exchange Commission

SIF ........ Sustainable Insurance Forum

TCFD ........ Task Force on Climate-related Financial Disclosures

TCFD Framework ........ TCFD, Implementing the Recommendations of the Task Force 

on Climate-related Financial Disclosures (October 2021)

Treasury ........ U.S. Department of the Treasury
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TABLE OF FIGURES

Figure 1: Examiners Handbook Possible Test of Controls Summary ..........................................27

Figure 2: Examples of Insurance-Focused Climate Scenario Analysis........................................30

Figure 3: Summary of Selected Disclosure Initiatives .................................................................51

Figure 4: Strategy Disclosure Standards.......................................................................................53

Figure 5: Metrics and Targets Disclosure Standards....................................................................54

Figure 6: U.S. Climate-Related Disaster Losses 2013-2022 ........................................................60
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I. INTRODUCTION AND SUMMARY OF RECOMMENDATIONS

The Federal Insurance Office (FIO) prepared this Report in response to Executive Order 14030 

on Climate-Related Financial Risk, which calls on the Secretary of the U.S. Department of the 

Treasury (Treasury) to direct FIO “to assess climate-related issues or gaps in the supervision and 

regulation of insurers, including as part of the [Financial Stability Oversight Council’s] analysis 

of financial stability, and to further assess, in consultation with States, the potential for major 

disruptions of private insurance coverage in regions of the country particularly vulnerable to 

climate change impacts.”1 This Report addresses the first task by analyzing climate-related 

issues and gaps in U.S. insurance supervision and regulation.

After undertaking this analysis, FIO concludes that there are nascent and important efforts to 

incorporate climate-related risks into state insurance regulation and supervision. FIO commends

these initial efforts from the National Association of Insurance Commissioners (NAIC) and state 

insurance regulators. However, these efforts are fragmented across states and limited in several 

critical ways. FIO encourages state insurance regulators to build on their progress. As 

highlighted in this Report, FIO will continue to prioritize climate-related work, in collaboration 

with our state and federal partners, including state insurance regulators, the NAIC, and the 

Financial Stability Oversight Council (FSOC).

FIO’s key findings and recommendations of this Report include:

• Climate-related risks—including physical, transition, and litigation risks—present new 

and increasingly significant challenges for the insurance industry.

2

 The oversight of 

climate-related risks is therefore an emerging and increasingly critical topic for state 

insurance regulators. Climate-related risks also warrant careful monitoring by financial 

regulators, policymakers, and insurers.

• State insurance regulators and the NAIC are increasingly focused on incorporating 

climate-related risks into supervision and regulation, but in most cases their efforts 

remain at a preliminary stage.

• Current regulatory frameworks provide state insurance regulators with tools they can 

adapt to better consider climate-related risks. The NAIC and some state insurance 

regulators are beginning to incorporate climate-related considerations into their 

regulatory tools.

• All state insurance regulators should prioritize efforts to adapt their regulatory and 

supervisory tools to incorporate climate-related risks. The NAIC and state insurance 

regulators should also prioritize the creation of new and effective climate-related risk 

tools and processes for use by state insurance regulators through, for example, the 

1 Exec. Order No. 14030, 86 Fed. Reg. 27,967 (May 20, 2021) (Executive Order 14030). For more on FIO’s 

statutory authorities, see Section II.B.

2 For a description of climate-related physical, transition, and litigation risks, see Section II.A.
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development of scenario analysis and increased use of the NAIC’s Catastrophe (CAT) 

Modeling Center of Excellence.

• More work is needed by state and federal regulators and policymakers, as well as by the 

private sector and the climate science and research communities, to better understand the 

nature of climate-related risks for the insurance industry, their implications for insurance 

regulation and supervision, and for the stability of the financial system—including for

real estate markets and the banking sector.

FIO makes 20 recommendations in this Report. The report includes important context for each 

recommendation, highlighting efforts that are already underway while also explaining how 

implementation of the recommendation could improve management and supervision of climaterelated risks. The Report also proposes areas of focus for future work by state insurance 

regulators and the NAIC.

In Section II, the Report provides background on the significance of climate-related risks for the 

insurance industry and discusses the roles of the states, the NAIC, and FIO. Section II then

provides FIO’s assessment of U.S. climate-related supervision and regulation of insurance in 

three categories: (1) prudential (sometimes referred to as microprudential), (2) macroprudential, 

and (3) market conduct. Section II concludes by reviewing several climate-related disclosure 

initiatives. Section III discusses additional FIO priorities concerning climate-related risks; how 

insurance-related disaster mitigation efforts may increase the resilience of policyholders to 

climate-related disasters; and how FIO is engaging with domestic and international stakeholders 

on climate risk issues. Finally, Section IV outlines next steps for FIO’s work.

By section, FIO’s recommendations are as follows:

Section II.C Recommendations – Analysis of U.S. Climate-Related Insurance Supervision 

and Regulation

1. State insurance regulators and the NAIC should build on the initial steps they have taken 

and expand their work on climate-related risks in order to promote increased regulatory 

uniformity among the states in considering such risks. The NAIC also should identify best 

practices in the state insurance regulatory community and encourage states to adopt these 

practices.

2. State insurance regulators and federal authorities should continue encouraging insurers to 

capture more granular, consistent, comparable, and reliable data on climate-related risks. 

State insurance regulators and federal authorities also should continue identifying relevant 

data that will improve the ability of insurers to quantify climate-related exposures and

otherwise fill data gaps with regard to climate-related risks and the insurance industry.
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Section II.C.1 Recommendations – Prudential Supervision and Regulation

Risk Management and Internal Controls

3. All state insurance regulators should develop and adopt climate-related risk monitoring 

guidance appropriate for their markets, which should include expectations for insurers to 

incorporate climate-related risks into their annual financial planning, as well as into their 

long- and short-term risk management processes, as some states have done.

Corporate Governance

4. To encourage increased focus on the impact of climate-related risks on insurers’ strategic 

planning and related processes, the NAIC and state insurance regulators should provide 

guidance on and encourage insurers to implement climate risk monitoring, and to report to 

regulators, in a uniform manner, on the impact of climate-related risks on their strategic 

processes.

Reporting Data and Examinations

5. The NAIC should revise the Financial Analysis Handbook to recommend, and states 

should require, that financial analysts and lead state analysts integrate climate-related 

considerations into their analysis. Additionally, the NAIC should provide guidance, and 

the NAIC and state insurance regulators should provide training, for financial analysts and

lead state analysts on how to evaluate assumptions and methodologies used in climaterelated forward-looking analysis.

6. The NAIC and state insurance regulators, in coordination with the insurance industry, 

should continue considering charges in Risk-Based Capital (RBC) formulas for floods, 

convective storms, and other climate-related risks.

7. The NAIC should adopt, and state insurance regulators should implement, the proposed 

enhancements to the Own Risk and Solvency Assessment (ORSA) Guidance Manual (ORSA 

Guidance Manual) and require insurers to incorporate climate-related risks into both 

ORSAs and ORSA Summary Reports.

3

If an insurer does not consider climate-related 

risks to be material to its business, its regulator should require the insurer’s ORSA 

Summary Report to explain why and to include support for its rationale based on applicable 

financial or quantitative measures.

3 NAIC, NAIC Own Risk and Solvency Assessment (ORSA) Guidance Manual (December 2022),

https://content.naic.org/sites/default/files/inline-files/naic-orsa-guidance-manual-final_0.pdf (ORSA Guidance 

Manual).
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8. The NAIC and state insurance regulators should adopt a single standard for defining 

“materiality” for climate-related risks to be used in the ORSA Summary Report to provide 

more comparable information. The NAIC and state insurance regulators should also adopt 

a single standard for defining “materiality” for climate-related risks to be used in the NAIC 

Climate Risk Disclosure Survey in order to obtain more consistent information across 

disclosures.4

9. The NAIC should finalize and adopt, and state insurance regulators should implement, the 

proposed climate-related enhancements to the Financial Condition Examiners Handbook

(Examiners Handbook) to ensure that climate-related risks are considered in every financial 

condition examination.

5

 The NAIC should provide sample questions and other guidance on 

when examiners should ask climate-related questions. The NAIC should monitor state 

financial condition examinations to determine which climate-related questions provided in 

the Examiners Handbook are asked and the types of responses provided to those questions, 

and periodically summarize its findings in a public report.

Modeling

10. The NAIC should continue to refine the capabilities and role of the Catastrophe (CAT) 

Modeling Center of Excellence by incorporating climate-related risk considerations so that 

it can be used more effectively by state insurance regulators to enhance assessment and 

supervision of insurers’ climate-related risks. To enable sharing of resources among state 

insurance regulators, the Center should develop a platform for access to models, 

methodologies, and related data. The NAIC should regularly produce public reports on key 

findings identified by state insurance regulators using the Center to monitor climate-related 

risks.

Scenario Analysis

11. The NAIC and state insurance regulators should prioritize their work on scenario analysis 

for climate-related risks, initially as a capacity building exercise for large insurers. Future 

NAIC work should include developing a pilot analysis with defined scenarios and 

assumptions for insurers to run and submit to regulators, commensurate with an insurer’s 

size, complexity, business activity, and risk profile.

4 NAIC, Proposed Redesigned NAIC Climate Risk Disclosure Survey, 2022, 3, 

https://content.naic.org/sites/default/files/inline-files/2022ProposedClimateRiskSurvey_0.pdf (Climate Risk 

Disclosure Survey).

5 NAIC, Financial Condition Examiners Handbook (2022), available through

https://content.naic.org/cmte_e_fehtg.htm (Examiners Handbook).
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Section II.C.2 Recommendations – Macroprudential Supervision and Regulation

12. The NAIC should incorporate climate-related risks in future Macroprudential Risk 

Assessments and these assessments should include additional detail on climate-related risks 

specific to insurer underwriting and investments.

13. State insurance regulators and the NAIC should monitor the availability of reinsurance for 

climate-related risks and consider whether market hardening or other constraints will 

adversely affect insurer solvency.

14. The NAIC should encourage consideration of climate-related risks by participants in 

supervisory colleges, and it should develop guidance to assist regulators when conducting 

such supervisory college engagements.

15. State insurance regulators and the NAIC should increase their work with the National 

Council of Insurance Legislators, state legislatures, and state guaranty associations to 

improve their ability to quantify potential climate-related risks for state guaranty funds and 

to better understand potential exposures from climate-related disasters for insurers, 

policyholders, and state governments.

16. All state insurance regulators and the NAIC should monitor growth and other trends in 

residual and surplus lines markets, and publicly report on how climate-related risks are 

currently affecting, and in the future may affect, these markets.

Section II.C.3 Recommendations – Market Conduct Supervision and Regulation

17. The NAIC, state insurance regulators, the insurance industry, FIO, the Financial Literacy 

and Education Commission (FLEC), and other partners should work together to increase 

consumer education and outreach regarding what climate-related risks are (and are not) 

commonly covered under personal lines of insurance and take steps to increase public 

awareness of the nature and magnitude of climate-related risks. They also should continue 

encouraging consumers to take advantage of educational and outreach programs in markets 

vulnerable to climate change, including programs relating to the value of, and opportunities 

for, pre-disaster mitigation investments in property resilience. Public-private partnerships 

with the insurance industry can aid this educational effort.

18. State insurance regulators and the NAIC should continue using existing frameworks for 

their post-disaster response efforts, including their focus on fair and efficient resolution of

claims. In addition, the NAIC and state insurance regulators should conduct more postdisaster surveys to assess the claims resolution process, particularly with regard to whether 

insurers are fulfilling their obligations in a fair and efficient manner.
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Section II.C.4 Recommendations – Disclosure Initiatives

19. The NAIC and state insurance regulators should support efforts to improve climate-related 

disclosures by the insurance industry, as analytical capabilities and best practices further 

develop. All state insurance regulators should adopt the NAIC Climate Risk Disclosure 

Survey. The NAIC should continue monitoring responses to its Climate Risk Disclosure 

Survey and publish an annual quantitative report summarizing the Survey results and 

addressing how well the Survey is fulfilling its six purposes.

20. The NAIC should consider revising its Climate Risk Disclosure Survey over the next 

several years to incorporate more prescriptive elements, including around quantitative 

financial impacts, scenario analysis, and consistent metrics and targets, with the goals of 

enhancing: (a) transparency about how insurers manage climate-related risks and 

opportunities, (b) the identification of good practices and vulnerabilities, and (c) the 

assessment of how climate-related risks are affecting the insurance industry.
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II. U.S. INSURANCE SUPERVISION AND REGULATION OF CLIMATE-RELATED 

RISKS

This section begins with an overview of climate-related risks and the role of insurance. The 

section then briefly describes the roles of the states, the NAIC, and FIO. It next analyzes U.S. 

climate-related insurance supervision and regulation6across three key aspects: (1) prudential

(sometimes referred to as microprudential), (2) macroprudential, and (3) market conduct. The 

section concludes with an analysis of climate-related disclosures.

Climate-Related Risks and Insurance

The connection between climate change and extreme weather events is well established.7 As 

noted in Executive Order 14030, climate-related disasters are increasing in frequency and 

severity within the United States.

8

 For example, Hurricane Ian in 2022 caused at least 157 

deaths and an estimated $95.5 billion in damages.9 Hurricane Ian was also one of 18 climaterelated disasters in the United States in 2022 that each cost over a billion dollars (adjusted for 

inflation).

10

 Additionally, nine of the ten costliest U.S. hurricanes have occurred since 2005, and 

eight of the ten costliest U.S. wildfires have occurred since 2017, after adjusting for inflation.

11

 

Significant efforts are underway to limit the increase in the frequency and severity of future 

climate-related disasters, including by reducing greenhouse gas (GHG) emissions. This Report 

considers the climate-related risks faced by the insurance industry, as well as how the U.S. 

6

“Insurance regulation” describes the creation and implementation of the legal requirements with which the 

insurance industry must comply, while “insurance supervision” describes the processes of monitoring and 

examining the financial condition and market conduct of insurers, including observing and managing the impact that 

these may have on financial stability. See, e.g., NAIC, NAIC, Financial Analysis Handbook Annual 2022/Quarterly 

2023 (2023), 783, https://content.naic.org/sites/default/files/publication-fah-zu-financial-analysis-handbook.pdf

(Financial Analysis Handbook). State insurance commissioners may serve as both regulators and supervisors. This 

Report generally uses the term “regulator” to encompass both regulatory and supervisory functions. “State 

insurance regulators” collectively includes the regulators for all 50 states, the District of Columbia (DC), and the 

territories.

7 See, e.g., U.S. Global Change Research Program (USGCRP), Fourth National Climate Assessment, Volume I

(2017), Executive Summary & chapter 3,

https://science2017.globalchange.gov/downloads/CSSR2017_FullReport.pdf.

8 See Exec. Order No. 14030 (referencing the “intensifying impacts of climate change”). In this Report, “climaterelated disasters” refer to weather-related events that may increase in frequency or intensity due to climate change, 

such as coastal and riverine flooding, drought, heat waves, hurricanes, and wildfire, as distinguished from nonweather-related natural phenomena such as earthquakes and earthquake-related tsunamis. The term “catastrophic 

events,” used elsewhere in this Report, may include both weather-related and non-weather-related events; similar 

terms used by the insurance industry include “natural catastrophes” and “natural disasters.”

9 Aon, Weather, Climate and Catastrophe Insights (2023), 3-4, 9, 26, https://www.aon.com/getmedia/f34ec133-

3175-406c-9e0b-25cea768c5cf/20230125-weather-climate-catastrophe-insight.pdf.

10

“U.S. Billion-Dollar Weather and Climate Disasters,” National Oceanic and Atmospheric Administration 

(NOAA), www.ncei.noaa.gov/access/monitoring/billions/.

11 “Facts + Statistics: Hurricanes,” Insurance Information Institute (III), https://www.iii.org/fact-statistic/factsstatistics-hurricanes; “Facts + Statistics: Wildfires,” III, https://www.iii.org/fact-statistic/facts-statistics-wildfires.
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insurance regulatory system is addressing these risks, and provides FIO’s recommendations for 

how management of these risks could be improved.

The U.S. insurance industry is an important component of the U.S. financial system, and it faces 

increasing financial risks due to the worsening effects of climate change. Climate-related 

disasters may exacerbate property damages and business interruptions, thus impacting losses 

under property and casualty (P&C) insurance coverage.

12

 Climate-related disasters also may

lead to more workers’ compensation claims; impact life and annuity insurance lines through 

effects on mortality, morbidity, and longevity of populations; and impair insurers’ investments in 

real estate or in securities of businesses vulnerable to climate-related disasters. In addition to the 

risks from climate-related disasters themselves, the ongoing efforts to shift to a carbon neutral or 

net-zero economy by mid-century could potentially introduce risks for insurers, particularly 

those that hold investments in high-carbon companies or sectors that are not prepared for the 

transition to net-zero.

13

In short, climate-related risks present new and increasingly significant challenges for the 

insurance industry that warrant careful monitoring by financial regulators, policymakers, and 

insurance companies. The oversight of climate-related risks is also an emerging and increasingly 

critical topic for state insurance regulators.

Climate-related risks can be grouped into three broad, generally applicable categories:

• Physical risks are “the harm to people and property arising from acute, climate-related 

disaster events such as hurricanes, wildfires, floods, and heatwaves as well as longer-term 

chronic phenomena such as higher average temperatures, changes in precipitation 

patterns, sea-level rise, and ocean acidification.”14 Growth in climate-related physical 

risks has implications for the solvency of insurance companies that are underwriting, 

reinsuring, or investing in areas subject to increasingly frequent and severe climaterelated disasters. Insurers may choose to raise premiums in, or withdraw from, certain 

markets facing increasing physical risks.15

• Transition risks refer to “stresses to certain institutions or sectors arising from the shifts 

in policy, consumer and business sentiment, or technologies associated with the changes 

necessary to limit climate change,” e.g., action associated with aligning activities with a 

12 Homeowners insurance and property insurance for businesses are types of P&C insurance, both of which typically 

exclude flood risk. The National Flood Insurance Program, administered by the Federal Emergency Management 

Agency (FEMA), provides most flood coverage. This Report focuses primarily on state insurance supervision and 

regulation.

13 See, e.g., FSOC, Report on Climate-Related Financial Risk 2021 (October 21, 2021), 13, 109-117,

https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf (Climate Report).

14 FSOC, Climate Report, 12.

15 See, e.g., Christopher Flavelle, et al., “Climate Shocks Are Making Parts of America Uninsurable. It Just Got 

Worse,” New York Times, May 31, 2023, https://www.nytimes.com/2023/05/31/climate/climate-change-insurancewildfires-california.html?searchResultPosition=1.
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net-zero economy by mid-century.16 Insurers, as an industry, are large institutional 

investors and allocate a substantial amount of their investment portfolios to corporate 

bonds and other long-term assets, as well as to equity securities, that can be exposed to 

transition risks. Transition risks can manifest on insurers’ financial statements through 

investment losses, reduced asset valuations, and through increased claims and liabilities. 

Conversely, insurers may be able to capture and promote opportunities associated with a 

net-zero transition, such as by underwriting or investing in low-carbon or zero carbon 

technologies.

• Litigation risks may “arise when parties are held liable for losses related to 

environmental damage that may have been caused by their actions or omissions.”17 

Litigation risks are increasing worldwide, with the number of climate-related cases more 

than doubling since 2015.18 While sometimes characterized as a subset of transition risk, 

litigation is recognized here as a distinct category given its relevance to insurers. Insurers 

may face litigation risks both through cases brought directly against them (whether by 

their own shareholders for alleged breaches of fiduciary duty for not addressing climaterelated risks or by policyholders for coverage disputes involving climate-related claims)

and through increased claims and adverse reserve development on various liability lines

that may face increased climate-related litigation, such as directors’ and officers’ 

insurance.19

Climate-related risks can manifest in the form of other risks that insurers manage, including 

credit risk, market risk, liquidity risk, underwriting risk, operational risk, and reputational risk.

• Credit Risk is “the risk that an entity may not meet its contractual financial obligations 

as they come due and any estimated financial loss in the event of default or 

impairment.”20 Both transition risk and physical risk can create credit risk for insurers. 

Insurers hold large investments in corporate bonds (over $2.5 trillion by year-end 

2022).21 The credit risk for insurers from such bonds may be exacerbated by the physical 

and transition risks faced by the issuer and the potential for associated asset devaluation,

16 FSOC, Climate Report, 13.

17 Financial Stability Board (FSB), The Implications of Climate Change for Financial Stability (November 2020),

16, https://www.fsb.org/wp-content/uploads/P231120.pdf.

18 Joana Setzer & Catherine Higham, Global Trends in Climate Change Litigation: 2022 Snapshot (June 2022), 1, 

https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2022/08/Global-trends-in-climate-change-litigation2022-snapshot.pdf.

19 See, e.g., FSB, The Implications of Climate Change for Financial Stability; International Association of Insurance 

Supervisors (IAIS) & Sustainable Insurance Forum (SIF), Application Paper on the Supervision of Climate-related 

Risks in the Insurance Sector (May 2021), https://www.iaisweb.org/uploads/2022/01/210525-Application-Paper-onthe-Supervision-of-Climate-related-Risks-in-the-Insurance-Sector.pdf (Climate Application Paper).

20 Moody’s Investor Service, Rating Symbols and Definitions (December 22, 2022), 4, available through

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=pbc_79004.

21 S&P Global Market Intelligence (S&P Global) data.
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reduced corporate profitability, or even counterparty failure.

22

 Insurers are also large 

investors in real estate assets, holding nearly $1 trillion in such assets as of year-end 

2021.

23

 Real estate may be vulnerable to credit risk if increases in the frequency and 

severity of climate-related disasters lead to a decrease in borrowers’ ability to repay or 

service their debt and/or to declines in real estate asset values.

24

 Thus, transition and 

physical risk in the larger economy potentially creates credit risk for insurers.

• Market Risk is “the exposure to uncertainty due to changes in rate or market price of an 

invested asset (e.g., interest rates, equity values).”25 Insurers are exposed to market risk 

primarily through their investments. Climate-related risks (including physical and 

transition risk) can create or amplify market risks. For example, investment values may 

be affected by climate-related policy changes or the threat of physical damage to assets. 

This can result in realized investment losses, either from impairment changes or in the 

event that assets need to be sold.

26

• Liquidity Risk is “the exposure to adverse cost or return variation stemming from the 

lack of marketability of a financial instrument at prices in line with recent sales.”27 

Historically, poor liquidity management has been one of the key factors underlying many 

instances of insurers’ distress or failures, and distressed assets could be a source of 

liquidity problems.

28

 Physical and transition risk could impact climate-sensitive assets 

(such as real estate, infrastructure, or timber), create uncertainty among key market 

participants, and cause procyclical market dynamics in certain markets, including asset 

fire sales, thus potentially heightening liquidity risk for insurers with exposure to those 

investments. On the underwriting side, volatile claims experience from climate-related 

disasters and increased claims payouts could potentially cause insurers to dispose of 

assets supporting those liabilities on unfavorable terms.29

22 Network of Central Banks and Supervisors for Greening the Financial System (NGFS), Guide for Supervisors: 

Integrating Climate-Related and Environmental Risks into Prudential Supervision (May 2020), 14, 

https://www.ngfs.net/sites/default/files/medias/documents/ngfs_guide_for_supervisors.pdf.

23 S&P Global data (including total commercial and residential real estate mortgage loans and mortgage-backed 

securities).

24 “Mortgage Loan Lenders and Climate Risk,” Climate Check,

https://climatecheck.com/risks/governance/mortgage-loan-lenders-and-climate-risk.

25 “Market Risk,” Insurance Risk Management Institute (IRMI), https://www.irmi.com/term/insurancedefinitions/market-risk.

26 See, e.g., New York State Department of Financial Services (NYSDFS), Guidance for New York Domestic 

Insurers on Managing the Financing Risks from Climate Change (November 2021), 16, 

https://www.dfs.ny.gov/system/files/documents/2021/11/dfs-insurance-climate-guidance-2021_1.pdf (Climate 

Guidance for NY Insurers).

27 “Liquidity Risk,” IRMI, https://www.irmi.com/term/insurance-definitions/liquidity-risk.

28 S&P, What May Cause Insurance Companies to Fail –And How This Influences Our Criteria (June 2013), 3, 5,

https://www.yumpu.com/en/document/read/43017028/what-may-cause-insurance-companies-to-fail-standard-poors.

29 Prudential Regulation Authority, Enhancing Banks’ and Insurers’ Approaches to Managing the Financial Risk 

from Climate Change (April 2019), www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisorystatement/2019/ss319.pdf?la=en&hash=7BA9824BAC5FB313F42C00889D4E3A6104881C44.
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• Underwriting Risk arises from underestimated liabilities and/or underpriced policies 

such that insurers face greater than expected losses.30 Climate-related physical risks,

transition risks, and litigation risks can affect underwriting risks.31 Insurance and 

reinsurance underwriters need to factor into pricing how more frequent and severe 

impacts from climate change could result in increasingly large insured property losses. 

P&C insurers may also face increased claims in some liability lines for climate-related 

lawsuits. Similarly, life insurers may need to consider the possibility of higher losses 

because of increases in morbidity or mortality rates from climate-related disasters.

• Operational Risk may arise from human, process, or technological failures, as well as 

from external events like cyber attacks or climate-related disasters.32 Specifically, the 

physical risk from climate-related disasters may have an adverse impact on insurers’ 

operations and business continuity.33 For example, insurers located in areas susceptible 

to climate-related disasters could experience extended power outages or the destruction 

of facilities.

• Reputational Risk may arise if insurers experience negative publicity. Reputational risk 

may be a form of transition and litigation risk, in that if insurers take actions that are 

perceived as contributing to climate change, such as insuring or investing in carbonintensive sectors, they may face adverse reputational consequences.

34

 Potential financial 

consequences of reputational risk include reduced policyholder demand due to bad 

publicity or increased legal fees, or higher settlements to avoid further negative publicity. 

Such financial consequences, however, may be more indirect and harder to quantify than 

the other risks discussed above.

The states, the NAIC, and FIO all have important roles to play in helping address climate-related 

risks in the insurance industry.

30 See, e.g., “Underwriting Risk,” IRMI, https://www.irmi.com/term/insurance-definitions/underwriting-risk.

31 See, e.g., Geneva Association, Climate Change Risk Assessment for the Insurance Industry (February 2021), 

https://www.genevaassociation.org/sites/default/files/research-topics-documenttype/pdf_public/climate_risk_web_final_250221.pdf.

32 See, e.g., “Operational Risk,” IRMI, https://www.irmi.com/term/insurance-definitions/operational-risk. See also

IAIS, Issues Paper on Insurance Sector Operational Resilience – Draft for Public Consultation (October 2022), 

https://www.iaisweb.org/uploads/2022/10/Issues-Paper-on-Insurance-Sector-Operational-Resilience.pdf.

33 See, e.g., NYSDFS, Climate Guidance for NY Insurers, 17; NGFS, Guide for Supervisors, 14.

34 See, e.g., NYSDFS, Climate Guidance for NY Insurers, 17; Munich RE, Sustainability Report 2021 (April 2022), 

56, https://www.munichre.com/content/dam/munichre/contentlounge/websitepieces/documents/munich_re_sustainability_report_2021.pdf/_jcr_content/renditions/original./munich_re_sustainabi

lity_report_2021.pdf.
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The Roles of the States, the NAIC, and FIO

The business of insurance in the United States is primarily regulated by the states, including the 

District of Columbia and the territories.35 Insurance laws are passed by state legislators, signed 

into law by governors, and implemented by state insurance regulators, who also adopt and 

enforce regulations and guidance for insurers domiciled or doing business within their states.36 

State insurance regulatory authority encompasses both prudential (or solvency) regulation, which 

addresses insurers’ financial condition, as well as market conduct regulation, which addresses 

consumer protection, access to insurance, rate and form reviews, and licensing, among other 

things. Each of those regulatory areas fulfills important objectives to protect policyholders and 

promote public confidence in insurance markets by ensuring that those markets are competitive, 

solvent, and stable and offer products that are fairly priced, transparent, and readily available 

from multiple companies.37

The NAIC is a 501(c)(3) organization established by the states and governed by their chief 

insurance regulators that provides guidance, data, tools, and other expertise and analysis for use 

by state insurance regulators. The NAIC’s guidance on supervision includes handbooks on 

financial analysis, examinations, and ORSA. For calculating the RBC requirement for an insurer 

(which is the statutory minimum level of capital that an insurer must maintain), states coordinate 

through the NAIC to ensures consistent methodology for setting capital requirements.38 The 

NAIC also develops model insurance laws and regulations reflecting the collective views of its 

members, i.e., state insurance regulators.

The NAIC may designate some model laws and regulations as “accreditation standards” if its 

members consider that they address matters of importance applicable to all states and that 

adoption will assist the states in developing and maintaining a relatively uniform baseline of 

fundamental insurance regulatory standards.39 Such models can only become effective 

regulatory tools when and to the extent that they are implemented by individual states, through 

their respective legislative and administrative processes. The NAIC periodically reviews 

whether an individual state meets the accreditation standards by enacting and enforcing laws and 

35 See, e.g., NAIC & Center for Insurance Policy and Research (CIPR), State Insurance Regulation (2011), 

https://content.naic.org/sites/default/files/inline-files/topics_white_paper_hist_ins_reg.pdf. 

36 An insurer is “domiciled” in the state that issued its primary license. See “Insurance Companies by State,” III, 

https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/a-50-statecommitment/insurance-companies-by-state#.

37 See, e.g., NAIC, “NAIC Announces 2023 Regulatory Priorities", news release, February 13, 2023, 

https://content.naic.org/article/naic-announces-2023-regulatory-priorities; “Macroprudential Supervision,” NAIC, 

last updated February 1, 2023, https://content.naic.org/cipr-topics/macroprudential-supervision; NAIC, “Market 

Conduct Regulation,” NAIC, last updated June 23, 2022, https://content.naic.org/cipr-topics/market-conductregulation.

38 For more on RBC requirements, see Section II.C.1.c.ii.

39 NAIC, Financial Regulation Standards and Accreditation Program (August 2022), 

https://content.naic.org/sites/default/files/inline-files/FRSA%20Pamphlet%208-2022%20.pdf (Accreditation 

Pamphlet).
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regulations that are “substantially similar” to the designated models.40 Although the NAIC’s 

current accreditation process does not directly and explicitly include the consideration of 

climate-related financial risk, some NAIC model laws and tools, as discussed in this Report,

incorporate climate-related financial risk considerations to varying extents. Currently, all 50 

states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands are accredited.41

While the primary regulators of the business of insurance are the states, Congress tasked FIO 

with an important insurance industry oversight role. In addition to advising the Secretary of the 

Treasury on major domestic and prudential international insurance policy issues and having its 

Director serve as a non-voting member of FSOC, FIO is authorized to, among other things, 

monitor all aspects of, and collect data and information on and from, the insurance industry.

42

 

From its first annual report in 2013, FIO has highlighted the devastating impact that natural 

catastrophes, such as hurricanes, floods, and wildfires, can have on insurers, policyholders, and 

other stakeholders.

43

 FIO’s current climate-related priorities are discussed further in Section III.

Analysis of U.S. Climate-Related Insurance Supervision and Regulation

The discussion below addresses state climate-related prudential, macroprudential, and market 

conduct supervision and regulation in turn, as well as certain state regulatory tools for addressing 

insurance market disruptions and disclosure initiatives, much of which is developed or 

coordinated through the NAIC. For all climate-related risk and resiliency issues, the NAIC’s 

Climate and Resiliency Task Force serves as its coordinating body.44 Presently, the NAIC is 

considering modifications and enhancements to incorporate climate-related risk concepts into 

several regulatory tools, discussed further below. FIO encourages the states and the NAIC to 

continue these initiatives and to increase their focus on climate-related risks.

40 NAIC, Accreditation Pamphlet, passim.

41 “Accredited U.S. Jurisdictions,” NAIC, https://content.naic.org/cmte_f_accredited_states.htm. If a state loses 

accreditation, it may result in some domiciliary insurers moving to an accredited state as well as damage to the 

reputation of the state’s insurance regulatory program. See, e.g., NAIC, The NAIC Accreditation Program

(November 2021), https://content.naic.org/sites/default/files/government-affairs-brief-accreditation-program.pdf.

42 31 U.S.C. § 313(e). For a more complete description of FIO and its authorities, see, e.g., FIO, Annual Report on 

the Insurance Industry (September 2022), 1-3,

https://home.treasury.gov/system/files/311/2022%20Federal%20Insurance%20Office%20Annual%20Report%20on

%20the%20Insurance%20Industry%20%281%29.pdf.

43 FIO, Annual Report on the Insurance Industry (June 2013), 9, 47–49,

https://home.treasury.gov/system/files/311/FIO%20Annual%20Report%202013.pdf. For other FIO reports, see 

“Reports and Notices,” Treasury, https://home.treasury.gov/policy-issues/financial-markets-financial-institutionsand-fiscal-service/federal-insurance-office/reports-notices. Reports relevant for climate-related risks include: FIO, 

The Breadth and Scope of the Global Reinsurance Market and the Critical Role it Plays in Supporting Insurance in 

the United States (2014), https://home.treasury.gov/system/files/311/FIO%20-Reinsurance%20Report.pdf

(discussing the role of reinsurance for catastrophes); FIO, Report Providing an Assessment of the Current State of 

the Market for Natural Catastrophe Insurance in the United States (2015),

https://home.treasury.gov/system/files/311/Natural%20Catastrophe%20Report.pdf.

44 “Climate and Resiliency (EX) Task Force,” NAIC, https://content.naic.org/cmte_ex_climate_resiliency_tf.htm.
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In addition to the collective work of the states through the NAIC, some individual state insurance 

regulators have taken meaningful steps to address climate-related risks. For example, the New 

York State Department of Financial Services (NYSDFS) developed, and in 2021 adopted, the 

first state insurance regulatory guidance on managing climate-related risks (NYSDFS Climate 

Guidance for NY Insurers).

45

 The NYSDFS Climate Guidance for NY Insurers builds on NAIC 

guidance, international guidance, and public comments submitted in response to publication of

New York’s draft guidance.46 The guidance states that NYSDFS “expects insurers to take a 

strategic approach to climate risks that considers both current and forward-looking risks and 

identifies actions required to manage those risks in a manner proportionate to the nature, scale, 

and complexity of insurers’ businesses,” including with respect to governance, risk management, 

scenario analysis, and disclosure.47

Similarly, in September 2022, the Connecticut Insurance Department (CID) finalized a bulletin 

outlining “Guidance for Connecticut Domestic Insurers on Managing the Financial Risks for 

Climate Change” (CID Climate Guidance for CT Insurers).

48

 Like the NYSDFS Climate 

Guidance for NY Insurers, the CID Climate Guidance for CT Insurers outlines a regulatory 

expectation that insurers “take a strategic approach to managing climate risks that consider both 

current and future risks and identifies actions necessary to manage those risks in a manner 

proportionate to the nature, scale, and complexity of insurers’ businesses.”49 And, in November 

2022, California released a Sustainable Insurance Roadmap comprising a four-part strategy to: 

(1) strengthen financial oversight and transparency, (2) accelerate sustainable investment 

strategies, (3) catalyze sustainable insurance product innovation, and (4) create resilient 

communities.50

In addition, three states—California, New York, and Vermont—have undertaken actions to 

collect data on the investment exposures to climate-related risks of insurers operating in those

45 NYSDFS, Climate Guidance for NY Insurers. As of 2020, New York P&C insurers accounted for about 7 percent

of the U.S. P&C market, while New York life insurers accounted for about 15 percent of the U.S. life insurance 

market. See NAIC, State Insurance Regulation: Key Facts and Market Trends – New York/2020 (2021), 6, 

https://content.naic.org/sites/default/files/publications-key-facts-market-trends-new-york.pdf.

46 NYSDFS, Climate Guidance for NY Insurers, 2.

47 NYSDFS, Climate Guidance for NY Insurers, 3-4. Governance, risk management, scenario analysis, and 

disclosure are all discussed in this Report, below.

48 Connecticut Insurance Department (CID), Bulletin No. FS-44 (September 15, 2022), https://portal.ct.gov/-

/media/CID/1_Bulletins/Bulletin-FS-44.pdf (Climate Guidance for CT Insurers). As of 2020, Connecticut P&C 

insurers accounted for 1.3 percent of the U.S. P&C market, while Connecticut life insurers accounted for about 2.8

percent of the U.S. life insurance market). See NAIC, State Insurance Regulation: Key Facts and Market Trends –

Connecticut/ 2020 (2021), 6, https://content.naic.org/sites/default/files/publications-key-facts-market-trendsconnecticut.pdf.

49 CID, Climate Guidance for CT Insurers, 1.

50 California Department of Insurance, California Sustainable Insurance Roadmap (November 2022), 

http://www.insurance.ca.gov/01-consumers/180-climate-change/upload/California-Sustainable-Insurance-Roadmap2022.pdf.
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states.51 Additional actions that these and other state insurance regulators are taking on climate 

risk are highlighted throughout this Report.

Recommendation 1: State insurance regulators and the NAIC should build on the initial steps

they have taken and expand their work on climate-related risks in order to promote increased 

regulatory uniformity among the states in considering such risks. The NAIC also should identify 

best practices in the state insurance regulatory community and encourage states to adopt these 

practices.

The availability of data is an important issue facing regulators as they develop climate-related 

insurance supervision and regulation. FIO has consistently noted the benefits of having highquality, consistent, comparable, and reliable data to support the assessment of climate-related 

financial risk.52 Regulators should prioritize their efforts towards identifying, defining, and 

collecting climate-related data.

Recommendation 2: State insurance regulators and federal authorities should continue 

encouraging insurers to capture more granular, consistent, comparable, and reliable data on 

climate-related risks. State insurance regulators and federal authorities also should continue 

identifying relevant data that will improve the ability of insurers to quantify climate-related 

exposures and otherwise fill data gaps with regard to climate-related risks and the insurance 

industry.

Prudential Supervision and Regulation

Prudential regulation of insurance focuses on protecting policyholders by seeking to ensure the 

financial safety and stability of insurers and by supporting a strong and viable insurance 

marketplace. Protecting policyholders (and insurers’ own investment portfolios) from the

financial impacts of climate-related risks is a component of insurers’ work. However, the degree 

to which insurers can manage climate-related risks depends in part on the extent to which 

climate-related risks can be adequately measured and integrated into applicable enterprise risk 

management (ERM) and capital management processes. This section focuses on regulatory 

requirements and guidance, including in examinations and reporting requirements, that are 

relevant to how insurers manage their climate-related prudential risks through risk management 

and internal controls, corporate governance, and operations. Further, this section describes how 

regulators evaluate and monitor the financial health of insurers using financial analysis tools, 

RBC, ORSA, and financial condition examinations. This section concludes with discussions of 

modeling and scenario analysis in the context of climate-related risk supervision.

51 See, e.g., FSOC, Climate Report, 42–43. See also California Department of Insurance, “Commissioner Lara 

Holds Insurance Companies Accountable in Push for More Investment Solutions to Fight Climate Change,” news 

release, April 18, 2022, https://www.insurance.ca.gov/0400-news/0100-press-releases/2022/release028-2022.cfm.

52 See, e.g., Federal Insurance Office Request for Information on the Insurance Sector and Climate-Related Financial 

Risks, 86 Fed. Reg. 48,814 (August 31, 2021) (Climate Risk RFI).
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Risk Management and Internal Controls

State insurance regulators help set expectations for insurers’ establishment and implementation 

of their own risk management policies, procedures, and internal controls. “Risk management” is 

the set of internal processes carried out by an insurer’s board and management to support the 

achievement of its objectives by identifying and addressing risks and their potential impact. 

“Internal controls” are an insurer’s internal procedures and policies that help safeguard its assets, 

provide trustworthy financial reporting, facilitate compliance with rules and regulations, and 

achieve efficient and effective operations. In setting expectations, state insurance regulators seek 

to ensure that insurers have effective and documented risk management systems that reflect an 

understanding of how material risks are managed within the insurers’ risk appetite limits.53 (For 

more on materiality, see Box 1.) Regulators also seek to ensure that these risk management 

systems operate pursuant to effective and documented internal controls that incorporate 

independent functions for risk management, compliance, actuarial, and internal audit.54 In 

particular, supervisory oversight of the internal audit functions of insurers may strengthen the 

reliability of the data and other information that insurers provide to their regulators. State 

insurance regulators evaluate risk management and internal control functions through mandated 

annual reporting and through periodic examination of insurers, including coordination of riskfocused financial examinations for multi-state insurers.

55

Climate-related risks fit within the existing prudential insurance regulation framework for 

evaluating material risks. As discussed above, climate-related risks can impact other risks 

insurers manage, including credit risk, market risk, liquidity risk, underwriting risk, operational 

risk, and reputational risks. These risks are also key components of an insurer’s ERM processes 

(and ORSA).

56 ERM frameworks, however, focus primarily on near-term estimates. Therefore, 

while they may capture acute risks from extreme-weather events, they may omit climate-related 

risks that manifest over a longer-time horizon yet are still reasonably foreseeable.57 Regulators 

may need to encourage insurers to expand their focus from near-term risks (corresponding with 

insurers’ current business plans) to encompass a longer time horizon for climate-related risks.58

53 See, e.g., NAIC, Financial Analysis Handbook, 851. Risk appetite is the aggregate level and types of risk an 

insurer is willing to assume, within its capacity, to achieve its strategic objectives and business plan. IAIS, IAIS 

Glossary (November 2019), 8, https://www.iaisweb.org/uploads/2022/01/191115-IAIS-Glossary.pdf.

54 See, e.g., IAIS & SIF, Climate Application Paper, 16.

55 For more on reporting and examinations generally, see Section II.C.1.c.

56 See Section II.A for more information on these risks. For more information on ORSA, see Section II.C.1.c.iii.

57 See, e.g., Task Force on Climate-related Financial Disclosures (TCFD), Implementing the Recommendations of 

the Task Force on Climate-related Financial Disclosures (October 2021), 70,

https://assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Implementing_Guidance.pdf (Framework)

(“Climate-related impacts can occur over the short, medium, and long term. Organizations can experience chronic, 

gradual impacts (such as impacts due to shifting temperature patterns), as well as acute, abrupt disruptive impacts 

(such as impacts from flooding, drought, or sudden regulatory actions).”).

58 See, e.g., Memorandum from Commissioner Birrane, Co-Chair of the Climate Resiliency (EX) Task Force leading 

the Solvency Workstream to Kathy Belfi and Mike Yanacheak, Co-Chairs of the ORSA Implementation (E) 
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Current state guidance regarding integration of climate considerations into insurers’ risk 

management and internal control functions varies among the states. All states follow NAIC 

guidance for financial analysis, financial condition examinations, and ORSA; but this guidance 

does not currently require that insurers’ risk management processes explicitly address climaterelated risks.59

 Some individual states, however, have issued or are considering guidance for 

their domestic insurers specifying measures directed to management of climate risk. For 

example, the CID Climate Guidance for CT Insurers mentioned above states that “[t]he 

Department expects an insurer to have a written risk policy adopted by its board describing how 

the insurer monitors and manages material climate risks in line with its risk appetite statement.”

60

 

The NYSDFS Climate Guidance for NY Insurers also addresses risk management, stating that it 

expects an insurer to have “a written risk policy adopted by its board describing how the insurer 

monitors and manages material climate risks in line with its risk appetite statement.”

61

 In 2021, 

Vermont’s Department of Financial Regulation announced plans to develop guidance to address 

climate-related risks, including incorporation into ERM processes.

62

Recommendation 3: All state insurance regulators should develop and adopt climate-related 

risk monitoring guidance appropriate for their markets, which should include expectations for

insurers to incorporate climate-related risks into their annual financial planning, as well as into 

their long- and short-term risk management processes, as some states have done.

Corporate Governance

State insurance regulators require insurers to establish and implement corporate governance 

frameworks that provide for prudent management of their business.63 Insurers must establish 

their individual policies and procedures for corporate governance against this backdrop of

established regulatory expectations and oversight.

The NAIC so far has not incorporated governance standards that address climate-related risks 

into the relevant model act and regulations.

64

Subgroup, May 23, 2022, https://content.naic.org/sites/default/files/inlinefiles/Climate%20Referral%20to%20ORSA%20Subgroup.pdf (NAIC ORSA Referral Memorandum).

59 See, e.g., NAIC, Financial Analysis Handbook; NAIC, Examiners Handbook; NAIC, ORSA Guidance Manual.

60 CID, Climate Guidance for CT Insurers, 4.

61 NYSDFS, Climate Guidance for NY Insurers, 10–11.

62 Vermont Department of Financial Regulation, “DFR Releases Report Examining the Impacts of Climate Change 

on Vermont’s Insurance Industry,” news release, June 28, 2021, https://dfr.vermont.gov/press-release/dfr-releasesreport-examining-impacts-climate-change-vermonts-insurance-industry.

63 See, e.g., NAIC, Accreditation Pamphlet, 11.

64 Neither the NAIC’s 2014 Corporate Governance Annual Disclosure Model Act,

https://content.naic.org/sites/default/files/inline-files/MDL-305.pdf , nor the NAIC’s 2014 Corporate Governance 

Disclosure Model Regulation, https://content.naic.org/sites/default/files/inline-files/MDL-306.pdf, mentions 

climate-related risk. Compare IAIS & SIF, Climate Application Paper, 15 & 16.
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Some individual states, however, have already begun to take steps to set expectations about the 

need for insurers to factor climate-related risks into their corporate governance. For example, the 

CID Climate Guidance for CT Insurers states that “[a]n insurer’s board of directors is ultimately 

responsible for overseeing the management of all risks, including climate risks,” and expresses 

an expectation that the insurer’s board or committees must understand and oversee management 

of climate-related risks, including the long-term nature of such risks.65 Similarly, the NYSDFS 

Climate Guidance for NY Insurers sets an expectation that an insurer’s board (or other governing 

entity) must understand the distinctive nature of climate-related risks, including their long-term 

impact beyond the standard three- to five-year business planning horizon, and also must oversee

the management of climate-related risks within the insurer’s overall business strategy and risk 

appetite.66 NYSDFS also expects each insurer to designate a member or committee of its board 

as responsible for the oversight of the insurer’s management of climate-related risks.67 Finally, 

NYSDFS expects each insurer to designate one or more members of its senior management, or a 

cross-functional committee of senior management, as responsible for the insurer’s management 

of climate-related risks.68

State insurance regulators also set the expectation that an insurer’s organizational structure, 

policies, and procedures should generally be based on and take into account the strategic 

direction and objectives established by the firm’s corporate governance framework.69 However, 

at present, NAIC materials on which state insurance regulators rely in setting such expectations,

such as the Financial Analysis Handbook and the Examiners Handbook, do not explicitly require

the integration of climate-related risks into an insurer’s organizational structure, policies, and 

procedures.

70

The NYSDFS Climate Guidance for NY Insurers, by contrast, explicitly emphasizes that the 

management of climate-related risks should be fully integrated into an insurer’s organizational 

structure, policies, and procedures.71 The NYSDFS guidance also encourages insurers to 

consider implementing management compensation policies that align incentives with their 

strategy for managing climate-related risks and with performance against climate metrics.72 In 

addition, the NYSDFS guidance encourages insurers to incorporate climate-related risks into 

their planning, including how such risks affect the organization, how they impact the firm’s 

65 CID, Climate Guidance for CT Insurers, 3.

66 NYSDFS, Climate Guidance for NY Insurers, 9.

67 NYSDFS, Climate Guidance for NY Insurers, 9.

68 NYSDFS, Climate Guidance for NY Insurers, 10. For other examples of guidance incorporating climate-related 

risks into corporate governance, see also IAIS & SIF, Climate Application Paper, 15.

69 See, e.g., NAIC, Examiners Handbook, 189 (stating that senior managers “guide the development and 

implementation of internal control policies and procedures that address their units’ objectives and ensure that they 

are consistent with the entity-wide objectives.”).

70 See NAIC, Financial Analysis Handbook; NAIC, Examiners Handbook.

71 NYSDFS, Climate Guidance for NY Insurers, 11.

72 NYSDFS, Climate Guidance for NY Insurers, 11. For other examples of guidance incorporating climate-related 

risks into corporate governance, see also IAIS & SIF, Climate Application Paper, 16.
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business strategy and future solvency levels, and whether affected business areas should be 

continued or adapted.73

Recommendation 4: To encourage increased focus on the impact of climate-related risks on 

insurers’ strategic planning and related processes, the NAIC and state insurance regulators 

should provide guidance on and encourage insurers to implement climate risk monitoring, and to 

report to regulators, in a uniform manner, on the impact of climate-related risks on their

strategic processes.

Reporting Data and Examinations

State insurance regulators have multiple tools (both quantitative and qualitative in nature) with 

which to monitor and evaluate whether insurers are meeting prudential regulatory expectations, 

including early identification of potentially troubled insurers. These tools include: (1) annual 

and quarterly public financial filings by all legal entity insurers, facilitating a risk-focused 

financial analysis process; (2) annual RBC filings, providing insight into insurers’ capital 

structure and adequacy; (3) annual confidential ORSA summaries by certain medium and largesized insurers; and (4) periodic financial examinations which, depending on the relevant 

organizational structure, may be conducted on a legal entity basis, or on the entire insurance 

holding company group, or on groups of entities within the insurance holding company system.

74

This section discusses the extent to which these tools currently incorporate climate-related risks.

State insurance regulators have also developed tools to help assess risks faced by insurance 

groups, including the Group Capital Calculation, the Enterprise Risk Report (Form F), the 

Liquidity Stress Test, and regulatory cooperation through supervisory colleges. These are 

discussed later in this Report.

75

i. Financial Filings and Financial Analysis Handbook

Licensed insurers must file both public and confidential financial information, generally 

quarterly and annually, with the regulator of the state in which they are domiciled.76 The NAIC 

has developed guidance and tools to assist regulators in conducting uniform, risk-focused 

reviews of insurer reporting, including statutory filings. The NAIC Financial Analysis 

Handbook is a reference guide that, among other things, provides a framework for the annual 

review of an insurer’s solvency and overall financial condition, as a means through which state 

insurance regulators may identify insurers experiencing financial difficulties. Such reviews also 

facilitate identification of risks that could lead to future financial stress. The NAIC is 

73 See, e.g., NYSDFS, Climate Guidance for NY Insurers, 11–12. See also TCFD, Framework.

74 See, e.g., NAIC, Financial Analysis Handbook; NAIC, Examiners Handbook, 8.

75 These are discussed in Section II.C.2, within the context of macroprudential supervision.

76 Typically, the NAIC coordinates filings on behalf of the states. An insurance group also may report on a 

consolidated basis to its lead state regulator, i.e., the regulator that is “generally considered to be the one state that 

‘takes the lead’ with respect to conducting group-wide supervision.” “Public Lead State Report,” NAIC, 

https://content.naic.org/public_lead_state_report.htm#.
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considering enhancements to the Financial Analysis Handbook that would incorporate climaterelated risk considerations.77

Recommendation 5: The NAIC should revise the Financial Analysis Handbook to recommend,

and states should require, that financial analysts and lead state analysts integrate climaterelated considerations into their analysis. Additionally, the NAIC should provide guidance, and 

the NAIC and state insurance regulators should provide training, for financial analysts and lead 

state analysts on how to evaluate assumptions and methodologies used in climate-related 

forward-looking analysis.

ii. Risk-Based Capital

RBC is a means for identifying potentially weakly capitalized insurers and facilitating regulatory 

action by measuring the minimum amount of capital appropriate for an insurer or an insurance 

group to support its business operations relative to its size and risk profile.

78

 While an insurer 

will set aside reserves, which are funds to cover its estimated liability in the future from claims 

under the policies it has issued, it will need capital to satisfy those claims if its reserves prove 

inadequate.79 State insurance regulators impose RBC requirements to help ensure that insurers 

can fulfill their financial obligations to policyholders.80 RBC requirements are reflected in state 

law, based on NAIC model laws and accreditation standards, and insurers are expected to report 

their RBC levels annually to regulators. For both P&C and life and health insurers, the RBC 

formulas focus on asset risk, underwriting risks, and other business risks. Interest rate risk is an 

additional RBC focus area in the formula for life and health insurers that is not part of the P&C 

formula.81

Current considerations of climate-related risks in RBC formulas are limited and apply only to 

P&C insurers. The RBC formula requires a special charge (the Rcat component) for just one 

77 Memorandum from Commissioner Birrane, Co-Chair of the Climate Resiliency (EX) Task Force leading the 

Solvency Workstream to Judy Weaver, Chair of the Financial Analysis Solvency Tools (E) Working Group (May 

23, 2022), https://content.naic.org/sites/default/files/inline-files/Climate%20Referral%20to%20FASTWG.pdf.

78 See, e.g., Risk-Based Capital (RBC) for Insurers Model Act (NAIC 2012), § 2.A,

https://content.naic.org/sites/default/files/inline-files/MDL-312.pdf ; FIO, Annual Report on the Insurance Industry, 

71-72 (September 2021), https://home.treasury.gov/system/files/311/FIO-2021-Annual-Report-InsuranceIndustry.pdf (2021 Annual Report).

79 See, e.g., “Risk-Based Capital,” NAIC, last updated December 6, 2022, https://content.naic.org/cipr-topics/riskbased-capital#; “Financial Reporting,” III, https://www.iii.org/publications/commercial-insurance/how-itfunctions/financial-reporting.

80 See, e.g., NAIC, Risk-Based Capital Preamble, P-2, https://content.naic.org/sites/default/files/inlinefiles/RBC_Preamble%20final_2.pdf; “Risk-Based Capital,” NAIC; Risk-Based Capital (RBC) for Insurers Model 

Act; NAIC, Accreditation Pamphlet, 9.

81 See, e.g., Risk-Based Capital (RBC) for Insurers Model Act, § 2.B.-C.
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climate-related risk: hurricanes.

82 Further, that charge applies only to those P&C insurers

writing business in jurisdictions identified by the NAIC as having hurricane exposure.

83

In 2022, the NAIC Capital Adequacy Task Force approved a proposal to add wildfire as one of 

the perils covered by the Rcat component for P&C insurers.84 Unlike the charge for hurricanes, 

however, the charge for wildfire is for informational purposes only (meaning that insurers are not 

required to actually hold more capital to cover the potential exposures) and applies only to larger 

companies (with smaller companies exempted from calculating the capital charge so long as it 

remains for information-only purposes).85 The method for calculating the wildfire charge is 

similar to the method for calculating the hurricane charge.86 Last year, the NAIC Capital 

Adequacy Task Force approved a list of wildfire events for purposes of 2022 RBC reporting.

87

The NAIC has considered developing RBC risk charges for additional climate-related perils such 

as floods and convective storms.

88 Charges for additional perils may take some time to be 

completed and implemented, hindered in part by the complexity of, and other difficulties with, 

models for such perils.

89

 Nevertheless, continued efforts to consider such risk charges will 

enhance the ability of both regulators and insurers to better understand climate-related risks and 

will build the insurance industry’s capacity to model such risks.

82 The charge is calculated by multiplying RBC factors by corresponding modeled losses and reinsurance 

recoverables (i.e., the portion of an insurance company’s losses that could be recovered from reinsurers). See, e.g., 

See NAIC, Capital Adequacy (E) Task Force RBC Proposal Form (March 28, 2022), 1-3, 

https://content.naic.org/sites/default/files/inline-files/2021-17-CR%20Webposting.pdf. 

83 The charge is applicable in hurricane-prone areas, defined as “Hawaii, District of Columbia and states and 

commonwealths bordering on the Atlantic Ocean and/or the Gulf of Mexico including Puerto Rico.” See NAIC, 

Capital Adequacy (E) Task Force RBC Proposal Form (March 28, 2022), 3. This charge was not originally 

developed to address climate-related risks as such, but rather to address hurricanes as a peril that can create a 

material solvency risk. See NAIC, NAIC Risk-Based Capital Forecasting and Instructions (2017), 1, 50–51, 

https://www.in.gov/idoi/files/Risk-Based-Capital-Instructions-PandC-17.pdf.

84 NAIC, Capital Adequacy (E) Task Force RBC Proposal Form, March 28, 2022.

85 NAIC, Capital Adequacy (E) Task Force RBC Proposal Form (April 28, 2022),

https://content.naic.org/sites/default/files/inline-files/2021-17-CR%20%28MOD%29%20Webposting.pdf. The 

NAIC has not indicated how long the charge for wildfires will remain for informational purposes only. NAIC, 

NAIC Risk-Based Capital Forecasting and Instructions (2017), 1; NAIC, NAIC Risk-Based Capital Forecasting and 

Instructions (2013), 8, https://naic.soutronglobal.net/Portal/Public/enUS/DownloadImageFile.ashx?objectId=3737&ownerType=0&ownerId=11734. 

86 See NAIC, Capital Adequacy (E) Task Force RBC Proposal Form (March 28, 2022), 1-3. 

87 NAIC, Capital Adequacy (E) Task Force RBC Proposal Form (August 11, 2022),

https://content.naic.org/sites/default/files/inline-files/2022-04-CR%20webpost.pdf.

88 See NAIC, Catastrophe Risk (E) Subgroup Virtual Meeting Draft Minutes (February 22, 2022), 

https://content.naic.org/sites/default/files/call_materials/CatRiskSG%20Materials%203-22-22_0.pdf.

89 See NAIC, Catastrophe Risk (E) Subgroup Virtual Meeting Draft Minutes (January 25, 2022), 

https://content.naic.org/sites/default/files/call_materials/CatRiskSG%20Materials%203-22-22_0.pdf. For more 

information on modeling, see Section II.C.1.d.
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Recommendation 6: The NAIC and state insurance regulators, in coordination with the 

insurance industry, should continue considering charges in RBC formulas for floods, convective 

storms, and other climate-related risks.

At the state level, a law enacted in July 2021 in Connecticut requires CID to issue a biennial 

report that will describe its progress in integrating climate-related risks into its RBC

requirements, ORSA assessments, and examinations.90 CID issued its first Climate Progress 

Report in March 2022. It discussed the development of its guidance to insurers on managing 

climate-related risks, which was finalized in September 2022.91

iii. Own Risk and Solvency Assessment

ORSA is a confidential, internal process that is undertaken by an insurance company or group to 

assess the adequacy of its risk management and current and future capital position. The NAIC

Risk Management and Own Risk and Solvency Assessment Model Act (ORSA Model Act) has 

been implemented by all states and requires each medium-to-large insurance company and group

to have a risk management framework, to conduct an annual ORSA, and to file annually a 

confidential report summarizing its ORSA (ORSA Summary Report) either with the insurance 

regulator of its domicile state upon request or with its lead state regulator whether or not any 

request is made.

92 A central component of the ORSA process is the use of forward-looking 

stress and scenario tests by insurers to improve their understanding of their own risk profiles and

to assess their ability to meet policyholder obligations under the scenario conditions set by the 

insurers for those tests.

93

 Regulators typically consider the ORSA Summary Report when 

evaluating an insurer’s ability to withstand financial stress and when assessing how risks faced 

by insurers within a holding company system may impact the insurance companies in that 

group.94

The NAIC’s Solvency Workstream of its Climate and Resiliency Task Force in May 2022 

proposed several enhancements to the ORSA Guidance Manual that would, if adopted, 

encourage state insurance regulators to require integration of climate-related risks into the ORSA 

90 Public Act 21-2 (2021), § 312, https://www.cga.ct.gov/2021/ACT/PA/PDF/2021PA-00002-R00SB-01202SS1-

PA.PDF.

91 CID, Climate Progress Report, 6 (March 29, 2022),

https://www.cga.ct.gov/INS/related/20220329_Connecticut%20Insurance%20Department%20Reports/2022%20Cli

mate%20Progress%20Report.pdf; CID, Climate Guidance for CT Insurers.

92 See “Own Risk and Solvency Assessment (ORSA),” NAIC, last updated February 1, 2023, 

https://content.naic.org/cipr-topics/own-risk-and-solvency-assessment-orsa; Risk Management and Own Risk and 

Solvency Assessment Model Act §§ 1, 3-6 (NAIC 2012), https://content.naic.org/sites/default/files/inlinefiles/MDL-505.pdf (ORSA Model Act).

93 For more on scenario analysis and stress testing, see Section II.C.1.e.

94 See NAIC, Solvency Modernization Initiative: Roadmap (August 31, 2012),

https://content.naic.org/sites/default/files/inline-files/committees_ex_isftf_smi_roadmap_120831.pdf.
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of each insurer. The proposed enhancements would provide guidance on the following ORSA 

elements:

• the insurer should include a description of how climate change risk is addressed through 

its risk management framework;

• if climate change has the potential to materially impact the insurer’s asset portfolio or its 

liabilities, then the exposure of assets or liabilities to transition or physical risks should be 

presented, discussed, and assessed in both a quantitative and qualitative manner; and

• encourage qualitative discussion of the material medium and long-term impacts of 

climate change risk on the insurer’s near-term risk appetite, asset management, 

underwriting, and business strategy, as well as efforts to limit the impact on near-term 

solvency.95

These enhancements, which remain under consideration by the NAIC, contemplate that insurers 

would assess the near-term impact of climate change on their asset portfolio and insurance 

liabilities, in alignment with the time horizon generally covered by an ORSA, i.e., one that 

corresponds to an insurer’s current business plan.

96

 As noted previously, however, climaterelated risks can be either acute or chronic, such that it would be more beneficial for insurers 

(and regulators) to consider a longer-term risk horizon in addition to the near-term horizon.

97

To date, only one state (New York) has developed and implemented a version of the ORSA 

Model Act that requires insurers to consider climate-related risks as part of their risk 

management.

98

 In September 2020, NYSDFS advised that it “expects all New York insurers to 

start integrating the consideration of the financial risks from climate change into their 

governance frameworks, risk management processes, and business strategies.”99 In June 2021, 

NYSDFS amended its ORSA regulation to require insurers to address climate change as one of 

the reasonably foreseeable and relevant material risks that must be addressed as part of their 

ERM function.100 In addition, NYSDFS expects ORSAs to either explain why climate risks are 

not considered material or to address such risks (including approaches to measurement, key 

assumptions, and scenario analysis outcomes).101 The NYSDFS Climate Guidance for NY 

95 NAIC ORSA Referral Memorandum, 1.

96 See NAIC ORSA Referral Memorandum; NAIC, ORSA Guidance Manual.

97 See also discussion in Section II.C.1.a.

98 NYSDFS, Insurance Circular Letter No. 15: Climate Change and Financial Risks (September 22, 2020), 

https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2020_15.

99 NYSDFS, Insurance Circular Letter No. 15.

100 NYSDFS Second Amendment to 11 NYCRR 82 (Insurance Regulation 203) (June 23, 2021), 

https://www.dfs.ny.gov/system/files/documents/2022/12/rf203_amend02_txt.pdf (amending 11 NYCRR 

§ 82.2(a)(9)).

101 NYSDFS, Climate Guidance for NY Insurers, 18.
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Insurers, finalized in November 2021, also discusses how insurers should address climate-related 

risks in their ORSAs.102

Although New York is the only state that presently requires insurers to consider climate-related 

risks as part of their ORSA, the NAIC has informed FIO that many insurers—particularly P&C 

insurers—nevertheless do analyze climate-related risks, as reflected in their annual ORSA 

Summary Reports.103 The ORSA Summary Reports are provided confidentially to an insurer’s 

state regulator, which limits FIO’s ability to assess the manner and scope of such analyses or the 

consistency of their underlying elements.

Recommendation 7: The NAIC should adopt, and state insurance regulators should implement, 

the proposed enhancements to the ORSA Guidance Manual and require insurers to incorporate 

climate-related risks into both ORSAs and ORSA Summary Reports. If an insurer does not 

consider climate-related risks to be material to its business, its regulator should require the 

insurer’s ORSA Summary Report to explain why and to include support for its rationale based 

on applicable financial or quantitative measures.

As part of its ORSA, an insurer must analyze material and relevant risks affecting its ability to 

meet its obligations to its policyholders.104 The NAIC ORSA Guidance Manual does not 

currently identify any particular risk (such as climate-related risks) for consideration by insurers,

because the intention of the ORSA process is to gain insight into what the insurer views as its 

“material and relevant risks associated with” its “current business plan, and the sufficiency of 

capital resources to support those risks.”

105

 The concept of “materiality” is considered in Box 1.

Box 1: Materiality in ORSA and NAIC Climate Risk Disclosure Survey

“Materiality” is a key concept in insurance regulation. As a general rule, a fact or figure is 

considered “material” if it may significantly bear on an insurer’s solvency, yet there is no single 

agreed definition of the term, as reflected in the following non-exhaustive compendium of 

definitions. The amount and types of information disclosed under these definitions can vary 

significantly and can lead to inappropriate comparisons when one analyzes “material” 

information from different reports.

Examiners Handbook: The Examiners Handbook defines materiality “as the dollar amount 

above which the examiner’s perspective of the company’s financial position will be influenced”

which should be assessed in the initial planning stage at two levels: “(1) an overall level as it 

relates to the annual statement taken as a whole; and (2) an individual balance (annual statement 

102 NYSDFS, Climate Guidance for NY Insurers, 18–19.

103 Comment Letter from the NAIC in response to FIO’s Climate Risk RFI, 3, November 11, 2021,

https://content.naic.org/sites/default/files/testimony-letter-response-fio-rfi-climate-financial-risk-211111.pdf; FSOC, 

Climate Report, 41.

104 See ORSA Model Act §§ 2(C), 3. See also Section II.C.1.a for more on risks that might be considered.

105 ORSA Model Act § 2(C).
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line item) level.”106 The Examiners Handbook also suggests that the examiner set the threshold 

for materiality at one of the following levels: (1) one to five percent of the insurer’s capital and 

surplus, (2) five percent of the pretax gain from operations, (3) 0.5 percent of the insurer’s total 

assets, or (4) in special circumstances, the level that the examiner considered appropriate based 

on the examiner’s professional judgment and consideration of the relevant factors.107

Enterprise Risk Report (Form F): For Form F, the NAIC’s Model Insurance Holding 

Company System Regulatory Act considers the following as “material”: risk report sales, 

purchases, exchanges, loans or extensions of credit, investments, or guarantees involving more 

than 0.5 percent of an insurer’s admitted assets as of December 31 of the year being reported.108

ORSA: Neither the NAIC’s model law nor guidance on ORSA define materiality. Instead, they

let an insurer use its own view of what it considers material when completing its ORSA and 

ORSA Summary Report, so long as the ORSA Summary Report describes “how the insurer 

identifies and categorizes relevant and material risks and manages those risks as it executes its 

business strategy.”109

NAIC Climate Risk Disclosure Survey allows the insurer to choose to use the materiality 

standard from either the Examiners Handbook or the SEC.

110

 For the SEC, a fact is “material” if 

there is “a substantial likelihood that the . . . fact would have been viewed by the reasonable 

investor as having significantly altered the ‘total mix’ of information made available.”

111

Recommendation 8: The NAIC and state insurance regulators should adopt a single standard 

for defining “materiality” for climate-related risks to be used in the ORSA Summary Report to 

provide more comparable information. The NAIC and state insurance regulators should also

adopt a single standard for defining “materiality” for climate-related risks to be used in the 

NAIC Climate Risk Disclosure Survey in order to obtain more consistent information across 

disclosures.

106 NAIC, Examiners Handbook, 64.

107 NAIC, Examiners Handbook, 64–65. For more on financial condition examinations, see Section II.C.1.c.iv.

108 Model Insurance Holding Company System Regulatory Act, § 4.D (NAIC 2015), 

https://content.naic.org/sites/default/files/inline-files/MDL-440.pdf. See also, NAIC, Revisions to Models #440 and 

#450 (2021), https://content.naic.org/sites/default/files/inline-files/2020%20and%202021%20Revisions

%20to%20Model%20%23440%20and%20%23450.pdf. “Admitted assets” are assets the value of which are

included in an insurer’s annual financial statements filed with its state insurance regulator. “Admitted Assets,” 

IRMI, https://www.irmi.com/term/insurance-definitions/admitted-assets. For more on Form F, see Section II.C.2.a.

109 See ORSA Model Act; NAIC, ORSA Guidance Manual, 1 (“each insurer identifies, assesses, monitors, prioritizes 

and reports on its material and relevant risks identified by the insurer” (emphasis added)), 7.

110 NAIC, Climate Risk Disclosure Survey. For more information on the survey, see Section II.C.4.

111 SEC Staff Accounting Bulletin: No. 99 – Materiality (August 12, 1999), 

https://www.sec.gov/interps/account/sab99.htm. See also, e.g., Paul Munter, “Assessing Materiality: Focusing on 

the Reasonable Investor When Evaluating Errors,” SEC Statement, March 9, 2022, 

https://www.sec.gov/news/statement/munter-statement-assessing-materiality-030922 (citations omitted).
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iv. Financial Condition Examinations

While conduct of an ORSA is mandatory only for certain medium-to-large insurers, financial 

condition examinations apply to all insurers. These examinations are another important 

component of prudential supervision. A state insurance regulator generally should conduct a 

financial condition examination of each insurer domiciled within its state at least once every five 

years in order to evaluate the insurer’s solvency and compliance with the state’s insurance 

laws.112 Although conducted less frequently, these examinations complement the financial 

analysis and reporting tools (including the ORSA Summary Report) discussed above.113 

Financial condition examinations result in a report that may contain recommendations for 

company improvements in processes, activities, and/or controls, and the state insurance 

department may follow up to determine if the insurer has taken corrective action based on the 

recommendations.114 Financial condition exams are confidential and the results are generally not 

publicly disclosed.

Although climate-related risks may be considered as part of a financial condition examination, 

there is no clear requirement for the examiner to do so. In 2012, the NAIC adopted changes to 

its Examiners Handbook (applicable in all states) by specifying questions or tests on the impact 

of climate-related risks for use if the examiner deems them to be applicable to the insurer under 

examination.

115

 If an examiner considers them applicable, the “impact of climate change risk” 

questions on the Examination Planning Questionnaire for the insurer are: “Does the company 

have an impact of climate change risk strategy? Have any risks been identified related to the 

impact of climate change risk and, if so, what are they and how are these risks incorporated into 

the company’s overall business strategy?”116 The Examiners Handbook does not provide 

guidance on when or under what circumstances an examiner should consider the “impact of 

climate change risk” questions appropriate for an insurer under examination.

In some cases, examiners may evaluate an insurer’s climate-related risks during a financial 

condition examination as part of testing internal controls that the insurer chooses to use to 

address the risks to which it is potentially exposed, called “Possible Controls.”

117

 The Examiners 

112 See, e.g., Model Law on Examinations (NAIC 1999), https://content.naic.org/sites/default/files/MO390.pdf; 

NAIC, Examiners Handbook. A financial condition examination may be done in conjunction with a market conduct 

examination (discussed in Section II.C.3) as a “combination examination.”

113 The Examiners Handbook underscores the need for coordination between the analysis and examination functions. 

See, e.g., NAIC, Examiners Handbook, 9.

114 NAIC, Examiners Handbook, 158, 231.

115 NAIC, 2012 Proceedings of the National Association of Insurance Commissioners 2012 Fall National Meeting, 

Fall v. II (2012), 10-725, 10-727, 10-802, https://naic.soutronglobal.net/Portal/Public/enUS/DownloadImageFile.ashx?objectId=5193&ownerType=0&ownerId=17523. See also NAIC, Examiners 

Handbook, 596.

116 NAIC, Examiners Handbook, 370.

117 NAIC, Examiners Handbook, 237. The examiner is only required to test the effectiveness of controls that an 

insurer has chosen to use. The “Possible Tests of Controls” listed in the Examiners Handbook are not meant to be 

all-inclusive and an examiner may need to develop alternative tests to address how an insurer mitigates its risks.
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Handbook provides a few examples of risks for which the insurer may have Possible Controls 

that take climate change into consideration. It also suggests Possible Test of Controls that an 

examiner may choose to use to determine how well the insurer’s Possible Controls operate. 

Figure 1 illustrates the Examiners Handbook’s instruction to examiners on some of the Possible 

Controls and Possible Tests of Controls that might take climate change impacts into account.

Figure 1: Examiners Handbook Possible Test of Controls Summary

Identified Risk Possible Controls Possible Test of Controls Possible Detail Test

The insurer’s investment portfolio 

and strategy are not 

appropriately structured to 

support its ongoing business plan.

The insurer’s investment

strategy considers the impact 

of, and market expectations 

for, climate change on 

different investments, and the 

investment policy includes

guidelines that require 

diversification to protect 

against the impact of climate 

change.

Review the company’s

investment strategy for

consideration of climate

change in different 

sections and asset classes.

Consider use of an

investment 

specialist to

evaluate the 

company’s

exposure to climate 

change-related risk 

regarding its

investment

portfolio/strategy.

The insurer has not established 

and maintained appropriate risk 

exposure limits (including 

catastrophe coverage) that are 

consistent with risk appetite.

Risk exposure limits 

established by the insurer

consider the direct and indirect 

impacts of climate change 

risk.

Perform a walkthrough of 

the underwriting process 

and observe how the 

impact of climate change 

risk is considered when

establishing risk exposure 

limits.

The insurer has not established 

sufficient pricing practices, 

resulting in inadequate or 

excessive premium rates in 

relation to its assumed risks and 

expense structure. Consider 

utilizing an actuarial specialist to 

assist with test procedures related 

to this risk.

Pricing practices include 

consideration of future 

changes in loss development 

including the impact of 

climate change risk.

Perform a walkthrough of 

the pricing process and 

observe how the impact of

claim trends including 

climate change risk and

weather variability is

considered when

establishing rates/prices.

Source: NAIC, Examiners Handbook

In addition, the Examiners Handbook lists climate change as a “Prospective Risk Category,” i.e., 

one that does not apply to all insurers and for which applicability is left to the examiner’s

determination based upon the information provided by the insurer. Because it is solely within 

the discretion of the examiner whether to ask the climate-related questions or conduct the

climate-related test of controls, it is unclear whether and to what extent the procedures in the 

Examiners Handbook are being applied to climate-related risks. Financial condition

examinations themselves are confidential, and there is no publicly available aggregated 

information from the NAIC or the states compiling how often examiners ask the climate changerelated questions from the Examiners Handbook.

It is an encouraging development, therefore, that the NAIC is considering climate-related 
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enhancements to the Examiners Handbook; and, specifically, that the Solvency Workstream of 

the NAIC Climate and Resiliency Task Force has referred high-level principles to a technical 

group within the NAIC for further refinement.118 The principles under consideration include: 

“Implement a means to ensure that climate-related risks are considered as part of every financial 

condition examination, which may be achieved through the addition of ‘Climate Change’ as a 

new critical risk category.”119

Recommendation 9: The NAIC should finalize and adopt, and state insurance regulators should 

implement, the proposed climate-related enhancements to the Examiners Handbook to ensure 

that climate-related risks are considered in every financial condition examination. The NAIC 

should provide sample questions and other guidance on when examiners should ask climaterelated questions. The NAIC should monitor state financial condition examinations to determine

which climate-related questions provided in the Examiners Handbook are asked and the types of 

responses provided to those questions, and periodically summarize its findings in a public 

report.

Modeling

Another important tool for management of climate-related risks by insurers is the use of natural 

catastrophe and climate modeling. It is thus also important for state insurance regulators to 

understand and supervise insurers’ use of modeling. To that end, in June 2022, the NAIC 

Executive Committee approved a fiscal request to establish the “Catastrophe (CAT) Modeling

Center of Excellence” within the NAIC Center for Insurance Policy and Research.

120

 The 

Center’s functions include: (1) facilitating regulators’ access to CAT modeling documentation 

and assistance in distilling this information, (2) promoting regulators’ technical education and 

training on the mechanics of commercial models and treatment of perils and risk exposures, and 

(3) conducting applied research to help in the development of regulatory climate risk and 

resilience priorities.121 The NAIC Climate and Resiliency Task Force is engaging with the 

Center on climate-related risk and disaster mitigation research and analysis.122 

Presently, most catastrophe models have an inherently short-term focus, reflecting the fact that 

most P&C insurance policies are repriced annually. Further, most models use assumptions that 

are primarily based on historical experience, even as the past is becoming less reflective of a

future where the frequency, severity, and other characteristics of climate-related events are 

118 Memorandum from Commissioner Birrane, Co-Chair of the Climate Resiliency (EX) Task Force leading the 

Solvency Workstream to Susan Bernard, Chair of the Financial Examiners Handbook (E) Technical Group, May 23, 

2022, https://content.naic.org/sites/default/files/inline-files/Climate%20Referral%20to%20FEHTG.pdf (NAIC 

Technical Group Referral Memorandum).

119 NAIC Technical Group Referral Memorandum.

120 NAIC, NAIC Approves Two 2022 Fiscals (June 24, 2022), https://content.naic.org/article/naic-approves-two2022-fiscals.

121 See “Catastrophe Modeling Center of Excellence,” NAIC, https://content.naic.org/research/center-of-excellence.

122 See, e.g., “Climate and Resiliency (EX) Task Force,” NAIC, 

https://content.naic.org/cmte_ex_climate_resiliency_tf.htm.
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changing.

123

 As these tools evolve, to maximize the utility of natural catastrophe and climate 

modeling, both insurers and regulators will need to incorporate longer term perspectives and 

integrate best practices from the federal government and scientific community, including on 

modeling tail risks.

124

FIO welcomes the efforts of the NAIC Catastrophe (CAT) Modeling Center of Excellence to 

make modeling resources available to individual states that might not be able to develop such 

tools themselves, and FIO encourages the NAIC to continue and expand such work. In so doing, 

the NAIC should coordinate with states, insurers, modeling firms, the scientific community, and 

FIO to: (a) develop granular, insurance-specific datasets applicable to the United States, 

(b) improve methodologies for translating climate-related variables into insurer losses, and 

(c) incorporate transition, physical, and litigation risk components into the models.

Recommendation 10: The NAIC should continue to refine the capabilities and role of the 

Catastrophe (CAT) Modeling Center of Excellence by incorporating climate-related risk 

considerations so that it can be used more effectively by state insurance regulators to enhance 

assessment and supervision of insurers’ climate-related risks. To enable sharing of resources

among state insurance regulators, the Center should develop a platform for access to models, 

methodologies, and related data. The NAIC should regularly produce public reports on key 

findings identified by state insurance regulators using the Center to monitor climate-related 

risks.

Scenario Analysis

“Scenario analysis” usually refers to a risk-based assessment that estimates potential financial 

implications for a range of plausible future states, often at a counterparty, portfolio, or sectorwide level.

125

 Climate scenario analysis is scenario analysis that has been adapted to identify and 

assess potential financial implications of climate-related risks. In the context of insurance, this

tool may address a variety of regulatory objectives, including regulatory capacity building. 

Regulators may choose to incorporate climate scenario analysis in evaluations of potential future 

shocks on the resilience of financial institutions or the resilience of the financial system and may 

either conduct their own analyses or assess submissions from insurer-led analyses. An insurer 

123 Rex Frazier, “California’s Ban on Climate-Informed Models for Wildfire Insurance Premiums,” Ecology Law 

Quarterly (October 19, 2021), https://www.ecologylawquarterly.org/currents/californias-ban-on-climate-informedmodels-for-wildfire-insurance-premiums/.

124 See, e.g., President’s Council of Advisors on Science and Technology, Extreme Weather Risk in a Changing 

Climate: Enhancing Prediction and Protecting Communities (April 2023), https://www.whitehouse.gov/wpcontent/uploads/2023/04/PCAST_Extreme-Weather-Report_April2023.pdf.

125 Some observers may refer to “scenario analysis” as “stress testing” (or vice versa), reflecting that this is an 

evolving tool and discipline. However, as a general matter, climate scenario analysis differs from traditional stress 

testing exercises that are often used as part of capital adequacy assessments. For additional information, see FSOC,

Climate Report; “Publications,” NGFS, https://www.ngfs.net/en/liste-chronologique/ngfs-publications; UN 

Principles for Sustainable Insurance, Insuring the Climate Transition: Enhancing the Insurance Industry’s 

Assessment of Climate Change Futures (January 2021), https://www.unepfi.org/psi/wpcontent/uploads/2021/01/PSI-TCFD-final-report.pdf.
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may conduct its own scenario analysis for various reasons, including to comply with supervisory 

guidance or expectations (if applicable), to inform internal risk management, to assess capital 

adequacy, or to support public disclosures.126

Some insurance regulators are using climate scenario analysis to investigate risks within the 

insurance industry, focused primarily on transition risks faced by insurers, although most 

examples are outside of the United States. (See Figure 2.) When scenario analyses are based on 

submission of institution-led analysis (as in the France, UK, and Bermuda examples shown in 

Figure 2), it is somewhat similar to the process of traditional stress testing, which allows 

regulators to assess not only climate-related risks but also the capability of insurers to credibly 

run such tests. In some cases (as in the Figure 2 example from France), the scenario analysis 

includes a dynamic balance sheet assumption, meaning the institutions are allowed to reallocate 

their portfolios based on scenarios. Currently, regulators are not using any of these scenario 

analyses examples to determine capital adequacy.

Figure 2: Examples of Insurance-Focused Climate Scenario Analysis

Jurisdiction 

(Year) Scope

Risk(s) 

Covered Primary Results for Insurers

U.S.

California 

(2018)127

Insurers operating 

in California with 

more than $100M 

in premiums

Physical, 

transition

• Exposure to transition-impacted sectors

• Alignment between investee company production and that 

expected based on low-carbon pathways

• Percent of power plants in equity portfolio subject to water 

stress

• Percent of power, oil and gas, and coal assets in equity and 

fixed-income portfolios exposed to wildfire and flood risk

New York 

(2021)128

Insurers domiciled 

in New York

Transition • Exposure to transition-impacted sectors

• Alignment between investee company production and that 

expected based on low-carbon pathways

Non-U.S.

Netherlands 

(2018)129

Banks, insurers, 

and pension funds

Transition • Exposure to transition-impacted sectors

• Change in equity and bond prices

• Change in expected default

• Losses relative to total stressed assets

• Impacts on ratio of assets to obligations

126 See, e.g., FSOC, Climate Report, Figure 5.1, 93.

127 California Department of Insurance, Scenario Analysis: Assessing Climate Change Transition Risk in Insurer 

Portfolios (2018), https://interactive.web.insurance.ca.gov/apex_extprd/f?p=250:70.

128 NYSDFS, An Analysis of New York Domestic Insurers’ Exposure to Transition Risks and Opportunities from 

Climate Change (June 10, 2021),

www.dfs.ny.gov/system/files/documents/2021/06/dfs_2dii_report_ny_insurers_transition_risks_20210610.pdf.

129 De Nederlandsche Bank, An Energy Transition Risk Stress Test for the Financial System of the Netherlands

(2018), https://www.dnb.nl/media/pdnpdalc/201810_nr-_7_-2018-

_an_energy_transition_risk_stress_test_for_the_financial_system_of_the_netherlands.pdf.
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Jurisdiction 

(Year) Scope

Risk(s) 

Covered Primary Results for Insurers

France 

(2020)130

Nine banking 

groups and 15 

insurance groups

Physical, 

transition

• Exposure to transition-impacted sectors

• Change in portfolio value

• Change in insurance premiums

• Change in insurance claims by peril

• Share of premiums ceded to reinsurance

Europe 

(2020)131

Insurers Transition • Exposure to transition-impacted sectors

• Value of investments in climate-relevant sectors

• Change in value of re-priced assets

• Price adjustments and sensitivities to transition shock

UK and 

Bermuda 

(2020)132

General and life 

insurers; Bermuda 

reinsurers

Physical, 

transition

• Changes in coverage ratios

• Changes in investment income

• Change in expected losses

Europe

(2021)133

Banks, insurers, 

and investment 

funds

Physical, 

transition

• Exposure to transition-impacted sectors

• Changes in asset valuation

• Changes in probability of and loss given default

• Changes in non-performing loan ratio

UK 

(2022)134

Largest banks and 

insurers

Physical, 

transition, 

liability

• Change in value of invested assets

• Expected losses based on impact on insurance claims

Japan 

(2022)135

Three major banks 

and three major 

non-life insurance 

groups

Physical 

(insurers), 

transition 

(all)

• Changes in insurance claims payments

Source: FIO analysis

FSOC has recommended that its members “use scenario analysis, where appropriate, as a tool for 

assessing climate-related risks, taking into account their supervisory and regulatory mandates 

130 ACPR, A First Assessment of Financial Risks Stemming from Climate Change: The Main Results of the 2020 

Climate Pilot Exercise (April 5, 2021), https://acpr.banquefrance.fr/sites/default/files/medias/documents/20210602_as_exercice_pilote_english.pdf.

131 European Insurance and Occupational Pensions Authority (EIOPA), Sensitivity Analysis of Climate-Related 

Transition Risks (December 15, 2020), https://www.eiopa.europa.eu/document-library/publication/sensitivityanalysis-of-climate-change-related-transition-risks_en.

132 UK Prudential Regulation Authority & Bermuda Monetary Authority, Insurance Stress Test 2019 and Covid-19 

Stress Testing: Feedback for General and Life Insurers (June 17, 2020), https://www.bankofengland.co.uk/-

/media/boe/files/prudential-regulation/letter/2020/insurance-stress-test-2019-feedback.pdf.

133 European Central Bank & European Systemic Risk Board, Climate-Related Risk and Financial Stability (July 

2021), https://www.ecb.europa.eu/pub/pdf/other/ecb.climateriskfinancialstability202107~87822fae81.en.pdf.

134 BOE, Results of the 2021 Climate Biennial Exploratory Scenario (CBES) (May 24, 2022),

https://www.bankofengland.co.uk/stress-testing/2022/results-of-the-2021-climate-biennial-exploratory-scenario.

135 Bank of Japan Financial Services Agency, Pilot Scenario Analysis Exercise on Climate-Related Risks Based on 

Common Scenarios (Executive Summary) (August 26, 2022), https://www.fsa.go.jp/en/news/2022/20220826/01.pdf.
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and the size, complexity, and activities of regulated entities.”136 The Board of Governors of the 

Federal Reserve System (Federal Reserve) has already initiated such efforts in the banking 

sector, to enhance the ability of supervisors and banks to measure and manage climate-related 

financial risks.137 In January 2023, the Federal Reserve published the pilot exercise’s 

instructions for the six participating banks, outlining (a) the physical risk module, which focuses 

on scenarios that examine how acute physical risk drivers impact large banking organizations’ 

real estate portfolios, and (b) the transition risk module, which focuses on two scenarios from the 

Phase III vintage of climate scenarios from the Network of Central Banks and Supervisors for 

Greening the Financial System (NGFS).

138

 Through engagement and coordination with FSOC, 

the NGFS and other stakeholders, FIO intends to continue its own work on scenario analysis.139

State insurance regulatory attention to scenario analysis is advancing as well. The Solvency 

Workstream of the NAIC Climate and Resiliency Task Force is evaluating scenario analysis.140 

It also plans to survey Task Force members and other interested state insurance regulators on 

whether this workstream and the NAIC should develop and incorporate some form of climate 

scenario analysis into current oversight tools.141 In addition, the workstream intends to begin 

evaluating climate-related stress testing.

FIO welcomes the NAIC’s efforts to recognize the utility of climate-related scenario analysis and 

encourages the NAIC to continue and expand such work. In so doing, the NAIC should work 

with insurers, modeling firms, and FIO to: (a) develop granular, insurance-specific datasets 

applicable to the United States, (b) incorporate transition, physical, and litigation risks, (c) define 

scenarios that include risks from secondary perils, and (d) increase transparency on the 

modeling, data, and assumptions used in climate-related scenario analysis.

Recommendation 11: The NAIC and state insurance regulators should prioritize their work on 

scenario analysis for climate-related risks, initially as a capacity building exercise for large 

insurers. Future NAIC work should include developing a pilot analysis with defined scenarios

and assumptions for insurers to run and submit to regulators, commensurate with an insurer’s 

size, complexity, business activity, and risk profile.

136 FSOC, Climate Report, Recommendation 4.3, 124.

137 Federal Reserve, “Federal Reserve Board Announces that Six of the Nation’s Largest Banks will Participate in a 

Pilot Climate Scenario Analysis Exercise Designed to Enhance the Ability of Supervisors and Firms to Measure and 

Manage Climate-Related Financial Risks,” news release, September 29, 2022, 

https://www.federalreserve.gov/newsevents/pressreleases/other20220929a.htm.

138 Federal Reserve, Pilot Climate Scenario Analysis Exercise: Participant Instructions (January 2023), 1, 6-7, 12, 

22, https://www.federalreserve.gov/publications/files/csa-instructions-20230117.pdf.

139 See also Section III.B (discussing FIO’s transition risk analysis).

140 NAIC, Climate and Resiliency (EX) Task Force Draft Minutes (March 24, 2023), 1,

https://content.naic.org/sites/default/files/national_meeting/CRTF_MinutesPacket.pdf.

141 NAIC, Climate and Resiliency (EX) Task Force Draft Minutes (March 24, 2023), 2.
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Macroprudential Supervision and Regulation

Macroprudential supervision and regulation typically focus on activities of insurance groups and 

seeks to identify and ensure control of risks that could pose sector-wide vulnerabilities and 

common exposures in the insurance industry as well as potential shocks to the financial system 

and real economy. In the United States, macroprudential supervision and regulation have both 

state and federal elements, discussed in turn below. FSOC has recommended that both its

federal and state members “should prioritize internal investments to expand their respective 

capacities to define, identify, measure, monitor, assess, and report on climate-related financial 

risks and their effects on financial stability.”142

State Macroprudential Supervision and Regulation

At the state level, insurance regulators have several supervisory tools available for analyzing

insurance group activities. Supervisory tools include supervisory colleges, Enterprise Risk 

Report (Form F), the Group Capital Calculation (GCC), and the Liquidity Stress Test for life 

insurers. These are all based on the NAIC’s Model Insurance Holding Company System 

Regulatory Act, and are discussed below.

143

 In addition, the NAIC recently implemented a

Macroprudential Risk Assessment. This section also discusses how climate-related risks are

affecting state guaranty funds as well as residual and non-standard markets. 

Macroprudential Risk Assessment: In 2022, the NAIC conducted the first Macroprudential 

Risk Assessment to identify and assess industry-wide insurance risks.

144

 The Macroprudential 

Risk Assessment serves as the NAIC’s “primary tool to identify, measure and monitor risks to 

the insurance industry as well as the risks the insurance industry may pose to the overall financial 

sector (i.e., both inward and outward risks).” 145 The Macroprudential Risk Assessment also 

reported on the increasing levels of interconnection between the U.S. insurance industry and 

other financial products and entities, such as private equity, derivatives and the Federal Home 

Loan Banks.

146 The NAIC’s 2022 assessment includes a brief discussion of climate risk, noting 

that “[c]limate risk and increasing natural catastrophe exposure may create an increasingly 

challenging business environment going forward.”147 It also highlights areas for future climate142 FSOC, Climate Report, 5 (Recommendation 1.3).

143 The Model Insurance Holding Company System Regulatory Act (NAIC 2021),

https://content.naic.org/sites/default/files/MO440_0.pdf (Model Holding Company Act), is an accreditation standard 

and appears in some form in the insurance law of every state. The 2020 revisions to the Model Holding Company 

Act, relating to the GCC and Liquidity Stress Test, have not yet become accreditation requirements.

144 See NAIC, Financial Stability (E) Task Force and Macroprudential (E) Working Group Meeting (August 12, 

2022), 5-6; https://content.naic.org/sites/default/files/national_meeting/Minutes-FSTF.pdf; NAIC, NAIC 

Macroprudential Risk Assessment Overview, https://content.naic.org/sites/default/files/inlinefiles/Macroprudential%20Risk%20Assessment_0.pdf.

145 NAIC, U.S. Insurance Industry Macroprudential Risk Assessment as of December 31, 2021 (2022), 6, 

https://content.naic.org/sites/default/files/inline-files/2022%20MRA%20Report%20V3%20Combined.pdf.

146 NAIC, U.S. Insurance Industry Macroprudential Risk Assessment as of December 31, 2021, 11.

147 NAIC, U.S. Insurance Industry Macroprudential Risk Assessment as of December 31, 2021, 14.
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related work by the NAIC, including with respect to climate data such as: “regulators should 

consider the identification of industry wide risk indicators... [and] (whether existing reporting 

requirements enable adequate monitoring of the underlying risk(s) at an industry wide level.”148

Recommendation 12: The NAIC should incorporate climate-related risks in future 

Macroprudential Risk Assessments and these assessments should include additional detail on 

climate-related risks specific to insurer underwriting and investments.

Reinsurance: Reinsurance is a means for an insurer to transfer to another insurer (the 

“reinsurer”) a specified portion of the risks under one or more of the policies it has written.

149

 

Reinsurance serves a variety of functions, but it is particularly important as a means of protection 

for property insurers against the risk of accumulation of losses from catastrophic events. 

Underwriters—particularly property insurers—factor into their premium pricing calculations the 

cost and availability of reinsurance, which may be used to protect their balance sheets and better 

prepare them to address catastrophic incidents.150 With the increase in frequency and severity of 

climate-related disasters, reinsurers have been noticeably increasing the prices they charge for 

such protection, limiting coverage, or, in some cases, exiting certain markets.

151

Recommendation 13. State insurance regulators and the NAIC should monitor the availability 

of reinsurance for climate-related risks and consider whether market hardening or other 

constraints will adversely affect insurer solvency.

Supervisory Colleges: Supervisory colleges are a means of enhancing cooperation and 

communication among state, federal, and international regulators supervising insurers and noninsurance affiliates within an insurance group with international operations, also known as an 

internationally active insurance group.152 Supervisory colleges could be a means for supervisors 

to cooperate in assessing climate-related risks faced by insurers and insurance groups. However, 

the extent to which this is being done at present is not clear. The International Association of 

148 NAIC, U.S. Insurance Industry Macroprudential Risk Assessment as of December 31, 2021, 5.

149 For a more information, see FIO, The Breadth and Scope of the Global Reinsurance Market.

150 See, e.g., FIO, The Breadth and Scope of the Global Reinsurance Market.

151 See, e.g., Moody’s Investor Services, Reinsurers Defend Against Rising Tide of Natural Catastrophe Losses, For 

Now (January 10, 2023), https://www.moodys.com/web/en/us/about/insights/data-stories/reinsurers-mitigate-lowerprofits.html; Steve Evans, “Climate Change to Prolong Reinsurance Hard Market: Goldman Sachs,” Artemis, 

February 6, 2023, https://www.artemis.bm/news/climate-change-prolong-reinsurance-hard-market-goldman-sachs/;

Greg Ritchie, “Reinsurers Retreat from U.S. Disaster Hotspots on Climate Risks,” Insurance Journal, January 12, 

2023, https://www.insurancejournal.com/news/national/2023/01/12/702887.htm. See also Box 2.

152 See, e.g., Model Holding Company Act § 7; IAIS, Application Paper on Supervisory Colleges (November 2021), 

www.iaisweb.org/uploads/2022/01/211111-Application-Paper-on-Supervisory-Colleges.pdf; IAIS & SIF, Climate 

Application Paper, 12.

The IAIS lists 49 internationally active insurance groups, of whom nine have a U.S. state insurance regulator as their 

group-wide supervisor or lead state regulator. IAIS, Register of Internationally Active Insurance Groups Based on 

Information Publicly Disclosed by Group-wide Supervisors (July 26, 2022),

https://www.iaisweb.org/uploads/2022/07/Register-of-Internationally-Active-Insurance-Groups-IAIGs.pdf.
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Insurance Supervisors (IAIS) and the U.N.’s Sustainable Insurance Forum (SIF) have suggested 

that supervisory colleges may discuss “the use of natural catastrophe models and assumptions to 

account for climate change, including in stress scenarios” as part of the supervision of 

internationally active insurance groups, but have not proposed that regulators mandate this 

practice or other tools or procedures to address climate-related risks by supervisory colleges.153 

In the United States, the NAIC’s Financial Analysis Handbook provides guidance to assist 

regulators in conducting supervisory colleges but these materials do not specifically address 

climate-related risks.154

Recommendation 14: The NAIC should encourage consideration of climate-related risks by 

participants in supervisory colleges, and it should develop guidance to assist regulators when 

conducting such supervisory college engagements.

Form F: Insurance holding companies must annually file a Form F with their lead state

regulator in order to “identify the material risks within the insurance holding company system 

that could pose enterprise risk to the insurer.”155 Form F is currently the only state 

macroprudential supervision tool that expressly mentions climate-related risks. The instructions 

for completing Form F state that a description of “climate change exposures” is an example area 

of potential enterprise risk that insurance holding companies may report and, if material, that 

they must report.

156

 For Form F, “material” means sales, purchases, exchanges, loans or 

extensions of credit, investments, or guarantees involving more than 0.5 percent of an insurer’s 

admitted assets as of December 31 of the year being reported.157

Group Capital Calculation: The GCC is a tool for state insurance regulators to assess group 

risk and to measure a group’s capital adequacy by asking insurance groups to complete a 

template that seeks certain quantitative and qualitative data.158 A group’s GCC will include 

climate-related adjustments only if the RBC formula for one or more legal entities within the 

group itself requires such adjustments. Such requirements are limited, as described above. 

Currently, the RBC formula only requires climate-related adjustments for P&C insurers that 

write business in certain states with hurricane exposures.159 For comparison, in 2022 U.S. 

banking regulators published draft principles that, if adopted, could help identify the impact of 

153 IAIS & SIF, Climate Application Paper, 12.

154 NAIC, Financial Analysis Handbook, 801

155 Model Holding Company Act § 4.L.1.

156 NAIC, NAIC Enterprise Risk Report (Form F) Implementation Guide (2018), 7, 

https://content.naic.org/sites/default/files/inline-files/committees_e_isftf_group_solvency_related_form_f_guide.pdf

(Form F Guide).

157 Model Holding Company Act § 4.D. See also Box 1 for more on various definitions of “materiality.”

158 See Model Holding Company Act § 4.L.2; “NAIC Group Capital Calculation,” NAIC, last updated June 12, 

2023, https://content.naic.org/cipr_topics/topic_group_capital_calculation.htm; NAIC, Group Capital Calculation 

2022 Instructions (2022), https://content.naic.org/sites/default/files/inline-files/GCC%20Instructions-Final_5-5-

22.pdf; NAIC, Group Capital Calculation Template (2022), https://content.naic.org/sites/default/files/inlinefiles/2022%20GCC%20Template-Final_2.xlsx.

159 See Section II.C.1.c.ii (discussing RBC formula Rcat component for hurricanes and potential expansion).
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climate-related risks on the capital of large banks, but which would not mandate any specific 

adjustments to banks’ capital requirements.160

Liquidity Stress Test: The NAIC developed the Liquidity Stress Test framework to help state 

insurance regulators understand how aggregate asset sales by life insurers under specified 

liquidity stresses potentially could impact broader financial markets as well as to supplement a 

firm-specific liquidity risk management framework.161 The Liquidity Stress Test does not 

address climate-related risks. Regulators may vary stress test scenarios from year-to-year, 

however, and therefore could at some future point incorporate climate-related scenarios.

State Guaranty Funds: A state guaranty fund (known in some states as a state guaranty 

association) is a nonprofit legal entity created by state law to ensure the payment of “covered 

claims arising from the insolvency of insurers licensed in the state.”

162

 If a distressed insurer 

appears unable to meet its obligations to policyholders, its state insurance regulator may place it 

into receivership, which may take the form of conservation, rehabilitation, or liquidation; a 

liquidation may trigger state guaranty association protections for policyholders.

163

 State 

insurance regulators and guaranty funds do not always identify the reason for an insolvency—

and indeed there may be more than one cause—but there have already been some insolvencies

that may be linked to climate-related disasters.164

To the extent that the number and scope of climate-related disasters increases the risk of future 

insurer insolvencies, state guaranty funds may face new financial strains. Such financial strains 

160 See Federal Reserve, Federal Reserve Board Invites Public Comment on Proposed Principles Providing a Highlevel Framework for the Safe and Sound Management of Exposures to Climate-related Financial Risks for Large 

Banking Organizations (December 2, 2022), 

https://www.federalreserve.gov/newsevents/pressreleases/other20221202b.htm; Office of the Comptroller of the 

Currency, Principles for Climate-Related Financial Risk Management for Large Banks; Request for Feedback, OCC 

Bulletin 2021-16 (December 16, 2021), https://www.occ.treas.gov/news-issuances/bulletins/2021/bulletin-2021-

62.html; Federal Deposit Insurance Corporation, Statement of Principles for Climate-Related Financial Risk 

Management for Large Financial Institutions, 87 Fed. Reg. 19,507 (April 4, 2022).

161 See Model Holding Company Act § 4.L.3. NAIC, NAIC 2020 Liquidity Stress Test Framework for Life Insurers 

Meeting the Scope Criteria (May 2021), 8-9, https://content.naic.org/sites/default/files/inlinefiles/Final%202020%20LST%20Framework_0.pdf. The scenarios are determined by the NAIC and incorporate 

both prescribed and internal company assumptions for modeling purposes. Id. at 17.

162

“Guaranty Associations/Funds,” NAIC, last updated April 3, 2023, https://content.naic.org/cipr-topics/guarantyassociationsfunds. All 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands (for P&C only) 

have some form of guaranty mechanism in place, although they vary in structure and benefits. Id.

163 For more on guaranty funds, see, e.g., FIO, 2016 Consumer Report (2016), 27–29,

https://home.treasury.gov/system/files/311/2016_FIO_Consumer_Report.pdf; “Guaranty Associations/Funds,” 

NAIC; National Conference of Insurance Guaranty Funds, Backgrounder (October 26, 2018), 

https://www.ncigf.org/media-kit/backgrounder; “What Happens When an Insurance Company Fails?” National 

Organization of Life & Health Insurance Guaranty Associations,

https://www.nolhga.com/policyholderinfo/main.cfm/location/insolvencyprocess.

164 See, e.g., Louisiana Insurance Guaranty Association (LIGA), 2021 Annual Report (March 30, 2022), 1, 

https://www.laiga.org/wp-content/uploads/2022/07/2021-Annual-Report.pdf (noting “State National Fire Ins. Co. 

and Access Home Ins. Co. were two homeowner insurers which became insolvent in the wake of Hurricane Ida”).
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in the first instance generally would fall upon solvent members of the state guaranty fund; 

secondarily, they could fall upon policyholders.165 Although there are state-specific variations, 

generally speaking, each state guaranty fund association is responsible for estimating how much 

it will need to pay claims resulting from an insolvency and for raising the amounts necessary 

from solvent member insurers via mandatory assessments (subject to statutory limits that vary 

from state to state). Insurers then may recoup the assessments through premium increases, 

premium tax offsets, or policy surcharges.166

The Louisiana Insurance Guaranty Association (LIGA) presents a recent illustration of guaranty 

fund operation. As a result of several property insurer insolvencies in 2021 and 2022, LIGA 

became responsible for almost 13,000 new claims by the end of 2021 and over 28,000 additional 

new claims by the end of 2022.167 By comparison, in the nine years between 2012 and 2020, 

LIGA had handled an average of 711 new claims a year.

168

 The substantial increase in new 

claims created both a lengthy claims processing backlog for policyholders and a financial bill far 

larger than what LIGA was able to cover from assessments on solvent insurers in a single 

year.

169

 In 2022, LIGA assessed insurers for the full amount legally allowable for 2021 and 

2022, which was one percent of the total premium written in the previous calendar year.170 To 

address the shortfall, LIGA obtained permission from the Louisiana State Bond Commission to 

issue up to $600 million in bonds backed by future assessments on insurers over a 12-year period 

to allow it to pay current claimants in a timely manner.171 Solvent insurers in Louisiana that are 

subject to assessment by the guaranty fund are able to recoup assessments they pay LIGA by 

reducing the amount of premium taxes they pay the state or by increasing the rates that they 

charge policyholders.

172

165 For example, in April 2023, the Florida Insurance Commissioner approved a one percent emergency assessment

for the Florida Insurance Guaranty Association to help handle hundreds of millions of dollars in claims after United 

Property & Casualty Insurance Co. was put into receivership. Jim Saunders, “Florida Imposes 1% ‘Emergency’ Fee 

to Property Insurance Premiums,” South Florida Sun Sentinel (April 17, 2023), https://www.sunsentinel.com/business/fl-ne-nsf-insurer-insolvencies-20230417-75ngtxjkrzdojmb5zyk6i6ttva-story.html.

166

 See, e.g., “Guaranty Associations/Funds,” NAIC.

167 LIGA, 2022 Annual Report (March 30, 2023), 2, 19, https://www.laiga.org/wp-content/uploads/2023/04/2022-

Annual-Report.pdf.

168 LIGA, 2022 Annual Report, 19.

169 See, e.g., Michael Finch II, “Louisiana’s Bailout Program for Failed Insurers Wants $600 Million to Cover 

Losses,” The Times-Picayune, July 16, 2022, https://www.nola.com/news/business/article_e78f0c36-048a-11ed87de-db5d0cf88cec.html.

170 Louisiana Department of Insurance, Financial Condition of the Residential Property Insurance Market: 

Performance Audit Services (October 13, 2022), 7-8,

https://app.lla.state.la.us/publicreports.nsf/0/9d5c25a709f476a3862588da005c6930/$file/000283c0.pdf?openelement

&.7773098 (LA Dept. of Insurance, Financial Condition Report).

171 See, e.g., Finch, “Louisiana’s Bailout Program”; LA Dept. of Insurance, Financial Condition Report, 7.

172 See, e.g., LA Dept. of Insurance, Financial Condition Report, 8. In the past, insurers have usually chosen to 

reduce the amount of premium taxes that they pay. Id.
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As disasters become more frequent and more severe, U.S. state guaranty funds may have an even 

larger role to play. An advantage of the guaranty funds system is that it minimizes the adverse

contagion effects on other insurers from insurance company failures. Ultimately, however, 

insurers may pass on the costs of guaranty fund assessments to policyholders in the form of 

higher premiums. Plus, this structure could leave state guaranty fund associations, solvent 

insurers, and state taxpayers (directly or indirectly) vulnerable for policyholder losses that 

exhaust the resources of a single very large insurer or the simultaneous insolvency of multiple

smaller insurers.

Recommendation 15: State insurance regulators and the NAIC should increase their work with

the National Council of Insurance Legislators, state legislatures, and state guaranty associations 

to improve their ability to quantify potential climate-related risks for state guaranty funds and to 

better understand potential exposures from climate-related disasters for insurers, policyholders, 

and state governments.

Residual and Non-Standard Markets: Sometimes characterized as “insurers of last resort” for 

individuals or businesses otherwise unable to obtain insurance coverage, residual markets are 

programs for policyholders and markets viewed as high risk by insurers.173 Residual markets 

typically are established through legislation, which may include statutory provisions uniquely 

applicable to the market in the relevant state.174 The increasing use of such programs may not 

only signal market disruptions but also help to ameliorate them by serving individuals or 

businesses otherwise unable to obtain needed coverage directly from an insurer in the standard 

market.

Thirty-two states and the District of Columbia offer some sort of residual market for property 

owners.175 The vast majority of residual market plans are state-run Fair Access to Insurance 

Requirements (FAIR) plans that generally provide basic coverage for eligible properties but with 

differing state-by-state rules and limitations.

176

 Five states have “beach plans,” which function 

similarly to FAIR plans, except that they cover properties located on or near the coast. Florida 

and Louisiana have non-FAIR plan state-run organizations that underwrite policies for their 

173 For more information, see, e.g., FIO, 2021 Annual Report, Box 3, 66; FIO, Report Providing an Assessment of 

the Current State of the Market for Natural Catastrophe Insurance in the United States.

174 See, e.g., O.G.C.A. §§ 33-33-1 to 33-33-11 (statutory provisions relating to Georgia FAIR plan).

175

“A Firm Foundation: How Insurance Supports the Economy – Residual Markets,” III, 

https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/a-50-statecommitment/residual-markets.

176 States that have both residential and commercial FAIR plans include: Arkansas, California, Connecticut, 

Delaware, D.C., Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, 

Minnesota, Missouri, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode 

Island, Virginia, and Washington. Florida’s Citizens Property Insurance Corporation and Louisiana’s Citizens 

Property Insurance Corporation combine the FAIR and Beach plans. The Mississippi and Texas FAIR plans do not 

offer a commercial policy. See “A Firm Foundation,” III.
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residual markets.177 Residual markets vary in scope, sometimes limiting coverage to narrowly 

defined perils.178 For example, California’s FAIR plan has generally provided “fire only”

premises coverage. While California’s Insurance Commissioner has sought to include a more 

comprehensive option in the state’s FAIR plan, which might expand access and thereby 

potentially lower premiums, the president of the FAIR plan has stated this change would lead to 

higher premiums and would encourage more private insurers to exit the market.179

After decreasing in the 2010s, more recently the number of policies and amount of premiums 

within residual markets have climbed.180 For example, the California FAIR plan showed a 96 

percent increase in the number of property policies (from 126,854 to 248,361) between April 

2018 and December 2021, an increase that likely would have been higher had the California 

Department of Insurance not placed a moratorium on non-renewals in certain wildfire-affected 

areas.181 The Florida Citizen Property Insurance Corporation, Florida’s residual insurer, has seen 

an increase in policy counts from approximately 420,000 reported in June 2019 to over 

1,272,815 in April 2023.182 The number of policyholders in Louisiana’s residual market, the 

Louisiana Citizens Property Insurance Corporation, has risen from 47,093 policies in 2021 to 

154,507 in 2022, causing the corporation to seek and obtain a 63 percent rate increase.183 The 

Texas Windstorm Insurance Association, the Texas residual insurer for the 14 coastal counties 

and part of Harris County that provides wind and hail coverage for residential and commercial 

177 See, e.g., “Who We Are,” (Florida) Citizens Property Insurance Corporation, https://www.citizensfla.com/whowe-are; “Company Overview,” Louisiana Citizens Property Insurance Corporation (Louisiana Citizens), 

https://www.lacitizens.com/AboutUs/CompanyOverview.

178 Property Insurance Plans Service Office, PIPSO Reports (June 2022), 4, available at pipso.com/publications/.

179 See, e.g., California Department of Insurance, “Court Upholds Insurance Commissioner Lara’s Order to Expand 

FAIR Plan ‘Last Resort’ Coverage to Better Protect Homeowners,” news release, July 20, 2021, 

http://www.insurance.ca.gov/0400-news/0100-press-releases/2021/statement073-2021.cfm; Timothy Darragh, 

“California FAIR Plan Says CDI Demands Would Harm Consumers,” AM Best Information Services, July 14, 2022, 

https://news.ambest.com/newscontent.aspx?altsrc=108&refnum=242889.

180 See, e.g., “ A Firm Foundation,” III; III, 2021 Insurance Fact Book, 98–100, 

https://www.iii.org/sites/default/files/docs/pdf/insurance_factbook_2021.pdf (providing data for 2010–2019); 

California Department of Insurance, Data on Insurance Non-Renewals, FAIR Plan, and Surplus Lines (2020),

https://www.insurance.ca.gov/0400-news/0100-press-releases/2021/upload/nr117DataNonRenewalsandFAIRPlan12202021.pdf.

181 California Department of Insurance, Operational Assessment Report: California FAIR Plan Association (June 15, 

2022), http://www.insurance.ca.gov/0250-insurers/0300-insurers/0400-reports-examination/upload/CFPAOperational-Assessment-Report.pdf.

182

“Policies in Force,” (Florida) Citizens Property Insurance Corporation, www.citizensfla.com/policies-in-force.

183 Louisiana Citizens, Annual Statement for 2022 (2023), 350, https://www.lacitizens.com/docs/defaultsource/financial-reports-and-statements/2022-annual-statement.pdf?sfvrsn=7264ee03_2; Louisiana Department of 

Insurance, “Louisiana Department of Insurance Approves Citizens Rate Increase and Offers Tips for Policyholders,” 

news release, October 10, 2022, https://www.ldi.la.gov/news/press-releases/10-10-22-ldi-approves-citizens-rateincrease-and-offers-tips-for-policyholders. Louisiana Citizens must charge more than private insurers. Id. It 

represented less than one percent of direct written premiums in the homeowners multi-peril line in Louisiana in 2021 

based on S&P Global data.
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properties, saw its exposure for in-force policies increase by over 27 percent to over $75 billion 

in 2022.

184

In the case of FAIR or beach plans, such as those in California and Texas, each of the insurers 

within the state shares in the FAIR or beach plan’s profits, losses, and expenses in proportion to 

their share of the insurance market within the state.185 The Louisiana Citizens Property 

Insurance Corporation, which combines a FAIR and a beach plan, may levy either a regular or 

emergency assessment on insurers operating within Louisiana to cover its expenses and losses.186 

In Florida, the plan is funded by policyholder premiums, but it may make assessments on most 

policyholders within Florida (not just its own policyholders) in the aftermath of a particularly 

devasting storm or series of storms.187 

In the surplus lines market certain non-admitted insurers are permitted to offer coverage that is of 

limited availability in the admitted market.188 The ability of the surplus lines market to sell 

insurance that is otherwise of limited availability may permit (although not require) them to 

provide insurance to higher risk policyholders at higher premiums than that offered by admitted 

insurers in the standard market. Regulatory oversight and applicable laws differ for insurers in 

the surplus lines market that may have “more freedom to modify underwriting standards and 

rates, adopt new policy provisions, or exit geographic areas with accumulating correlated risks 

by choosing not to offer new policies in a geographic area or non-renewing existing policies in a 

geographic area than admitted insurers offering homeowner insurance.”

189

 The increased 

frequency and severity of climate-related disasters may lead to more correlated risks that cause 

insurers to shift their business to the surplus lines market.190

184 Thomas Frank, “Growing Insurance Crisis Spreads to Texas,” E&E News Climatewire, April 17, 2023, 

https://www.eenews.net/articles/growing-insurance-crisis-spreads-to-texas/;Texas Windstorm Insurance 

Association, Quarterly Liability Report as of December 31, 2022, 1, https://www.twia.org/wpcontent/uploads/Qtrly_Liab_20221231.pdf.

185

“Fair Access to Insurance Requirements (FAIR) Plans,” NAIC, last updated February 1, 2023,

https://content.naic.org/cipr-topics/fair-access-insurance-requirements-fair-plans#.

186 Louisiana Citizens, Regular Assessment and Emergency Assessment Collection and Remittance: FAQ’s or 

Guidelines and Procedures (February 12, 2021), https://www.lacitizens.com/docs/default-source/assessmentinformation/louisiana-property-insurance-corporation-assessment-guidelines.pdf?sfvrsn=e2b0e003_2.

187 “Who We Are,” (Florida) Citizens Property Insurance Corporation.

188 Non-admitted insurers (who are not themselves licensed in the state in which they are offering coverage) must 

place their products through an excess and surplus lines broker licensed in that state. See, e.g., “Nonadmitted 

insurance-US,” IRMI, https://www.irmi.com/term/insurance-definitions/nonadmitted-insurance-us. “Excess and 

surplus” insurance is “any type of coverage that cannot be placed with an insurer admitted to do business in a certain 

jurisdiction.” “Excess and Surplus Lines Insurance,” IRMI, https://www.irmi.com/term/insurancedefinitions/excess-and-surplus-lines-insurance.

189 FIO, Report Providing an Assessment of the Current State of the Market for Natural Catastrophe Insurance in 

the United States, 13.

190 For example, AIG cited the increased frequency and severity of natural catastrophes as a reason it moved some of 

its homeowners business to excess and surplus lines in multiple states. See, e.g., Chad Hemenway, “AIG to Move 
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Given their greater freedom of rate and form, surplus lines insurers may provide, at least for 

some classes of policyholders, an alternative source of coverage in areas for policyholders facing

challenges in obtaining coverage due to climate-related risks.

Recommendation 16: All state insurance regulators and the NAIC should monitor the growth 

and other trends in residual and surplus lines markets, and publicly report on how climaterelated risks are currently affecting, and in the future may affect, these markets.

Box 2: Examples of Other Market Interventions

States that are prone to climate-related disasters may take various measures to support their

insurance markets as demonstrated by these examples from Florida and Louisiana.

Florida’s insurance regulators and legislators have taken targeted steps in response to insufficient 

commercial capacity for property insurance for climate-related risks. The Florida Hurricane

Catastrophe Fund was established in 1993 to support the residential property insurance market 

for hurricane damages by partially reimbursing insurers’ losses.191 More recently, Florida 

convened special legislative sessions in May and December 2022 to attempt to address growing 

challenges to the state’s property insurance market.192 Among other reforms to the local 

insurance market, the resulting legislation created a $3 billion state program, “Reinsurance to 

Assist Policyholders,” for certain insurers to obtain support from the program in exchange for 

reducing policyholders’ rates. In particular, the temporary arrangement provides payment 

guarantees in the event of a rating downgrade so that insurers can maintain a credit rating 

sufficient to permit policyholders with federally backed mortgages to keep coverage from such 

insurers in place.193 

Louisiana has sought to use financial incentives to increase the number of insurers writing 

residential and commercial policies in its coastal areas with the creation of the Insure Louisiana 

Incentive Program in 2022.

194

 To receive a grant, the insurer must agree to write new residential, 

High Net Worth Homeowners to E&S,” Insurance Journal, February 17, 2022, 

https://www.insurancejournal.com/news/national/2022/02/17/654804.htm.

191 “About the FHCF,” Florida Hurricane Catastrophe Fund (“The coverage provided by the FHCF is similar to 

private reinsurance ... but at a lower cost than private market prices.”).

192 See, e.g., Christopher Flavelle, “Why Ian May Push Florida Real Estate Out of Reach for All but the Super Rich,” 

New York Times, October 13, 2022, https://www.nytimes.com/2022/10/13/climate/florida-real-estate-hurricaneian.html.

193 FLOIR, “Florida Establishes Temporary Reinsurance Arrangement for Insurers Facing Potential Financial 

Stability Rating Downgrades,” news release, July 27, 2022, https://floir.com/newsroom/archives/itemdetails/2022/07/27/florida-establishes-temporary-reinsurance-arrangement-for-insurers-facing-potential-financialstability-rating-downgrades. Leslie Scism and Arian Campo-Flores, “Florida Lawmakers Approve PropertyInsurance Overhaul, Sending Bill to DeSantis,” Wall Street Journal, December 14, 2022, 

https://www.wsj.com/articles/florida-lawmakers-approve-property-insurance-overhaul-sending-bill-to-desantis11671048780.

194

“Insure Louisiana Incentive Program,” Louisiana Department of Insurance,

https://www.ldi.la.gov/industry/insure-louisiana-incentive-program.
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commercial, mono-line, or package property insurance with a specified ratio of net written 

premiums for property located within the federal Gulf Opportunity Zone, and the policies must 

include coverage for wind and hail damages. The Louisiana Department of Insurance approved 

eight of the nine grant applications from insurers.

195

Federal Macroprudential Supervision and Regulation of Insurers

On the federal side, FSOC is charged with identifying risks to U.S. financial stability, promoting 

market discipline, and responding to emerging threats to the stability of the U.S. financial 

system.

196

 FSOC’s ten voting members and five non-voting members include the main U.S. 

financial regulatory agencies, as well as a state insurance commissioner, an independent member 

with insurance expertise, and the Director of FIO.197 The October 2021 FSOC Report on 

Climate-Related Financial Risk (FSOC Climate Report) identifies climate change as an 

“emerging threat to the financial stability of the United States.”198 The FSOC Climate Report

surveys the current state of U.S. regulatory and supervisory engagement with climate-related 

risks, available data and methodologies for analyzing such risks, public disclosures of climaterelated risks, and the implications for financial stability assessments.199

 The report’s four sets of 

recommendations cover: (1) building capacity and expanding efforts to address climate-related 

risks; (2) filling climate-related data and methodological gaps; (3) enhancing public climaterelated disclosures; and (4) assessing and mitigating climate-related risks that could threaten the 

stability of the U.S. financial system.

200

Several FSOC Climate Report recommendations relate to addressing climate-related issues or 

gaps in the regulation and supervision of insurance. The recommendations most relevant to FIO 

and state insurance regulators are reproduced below:

• “The Council recommends that the Federal Insurance Office (FIO) should act 

expeditiously to analyze the potential for climate change to affect insurance and 

reinsurance coverage, particularly in regions of the country affected by climate change, in 

consultation with the States, in a manner consistent with Executive Order 14030”

(Recommendation 1.7);

• “The Council recommends that its members, consistent with their mandates and 

authorities, evaluate climate-related impacts and the impacts of proposed policy solutions 

195 Louisiana Department of Insurance, “Donelon Announces Nine Companies Applied for Over $60M in Insure 

Louisiana Incentive Program Funding” news release, March 14, 2023, https://www.ldi.la.gov/news/press-releases/3-

14-23-donelon-announces-nine-companies-applied-for-over-60m-in-insure-louisiana-incentive-program-funding; 

“Insure Louisiana Incentive Program,” Louisiana Department of Insurance.

196 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 § 112(a)(1), 12 U.S.C. § 5322(a)(1).

197 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 §§ 111(b)(1)-(2), 12 U.S.C. 

§§ 5321(b)(1)-(2).

198 FSOC, Climate Report, 3.

199 FSOC, Climate Report.

200 FSOC, Climate Report, 5-9, 118-125.
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on financially vulnerable populations when assessing the impact of climate change on the 

economy and the financial system” (Recommendation 1.8);

• “The Council recommends that its members promptly identify and take the appropriate 

next steps towards ensuring that they have consistent and reliable data to assist in 

assessing climate-related risks through:

• Identifying the data needed to evaluate the climate-related financial risk exposures of 

regulated entities and financial markets within the context of each FSOC member’s 

mandate and authorities;

• Performing an internal inventory of currently collected and procured data and its 

relevance for climate risk assessments; and

• Developing a plan for procuring necessary data through data collection, data sharing 

arrangements described in Recommendation 2.2, and information purchased from data 

providers or other sources” (Recommendation 2.1);

• “The Council supports continued efforts by FIO and insurance regulators to work 

together to enhance the existing climate-related disclosures for the insurance sector”

(Recommendation 3.8);

• “The Council recommends that its members use scenario analysis, where appropriate, as 

a tool for assessing climate-related financial risks, taking into account their supervisory 

and regulatory mandates and the size, complexity, and activities of regulated entities”

(Recommendation 4.3);

• “FSOC members, consistent with their mandate and authorities, should review existing 

regulations, guidance, and regulatory reporting relevant to climate-related risks, including 

credit risks, market risks, counterparty risks, and other financial and operational risks, to 

assess whether updates are necessary to appropriately address climate-related financial 

risks” (Recommendation 4.7); and

• “FSOC members should evaluate whether additional regulations or guidance specific to 

climate-related risks is necessary to clarify expectations for regulated or supervised 

institutions regarding management of climate risks, taking into account an institution’s 

size, complexity, risk profile, and existing enterprise risk management processes”

(Recommendation. 4.8).

Pursuant to recommendations in the FSOC Climate Report, FSOC created an external advisory 

committee as well as an internal staff-level committee with multiple workstreams to address 

climate-related risks. FIO is working closely with FSOC on its climate-related work and will 

continue to provide insurance expertise to FSOC and its committees. FIO also will continue to

work with FSOC and Treasury’s Office of Financial Research to increase the federal 

government’s ability to understand and mitigate potential systemic risks and threats to U.S. 
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financial stability that might result from increased financial distress at insurers due to climaterelated disasters.

201

Market Conduct Supervision and Regulation

Market conduct regulation and supervision promotes the functioning of insurance markets and 

seeks to protect policyholders from unfair practices and among other things includes: oversight 

of disaster response, including claims-handling; company, broker, and claims-adjuster licensing; 

underwriting and rates, including policy renewals and cancellations; policy marketing and sales;

and the development of new or modified insurance products.202 Effective oversight of market 

conduct and consumer protection practices can allow regulators to spot market conduct issues 

before they potentially manifest as financial solvency concerns and thus complements prudential 

regulation.203 The NAIC’s Market Regulation Handbook provides guidance to state regulators 

on how to identify market conduct issues and conduct market conduct examinations.204 The 

NAIC has stated that market conduct regulation and supervision is critical for addressing risks to 

underserved populations.205 Its Market Regulation Handbook also states that as part of a 

regulator’s analysis of general market conditions one of the key factors to be considered is 

“[c]ompetitive pricing and availability of products.”206 These are important observations 

because researchers have found that minority communities may have less adequate insurance 

coverage, greater economic loss, and lower property valuation recovery after disasters as 

compared to other population segments.

207 Financial resilience is also lower in underserved 

communities, exacerbating hardships for already vulnerable populations that may not have 

access to sufficient financial tools and products when trying to recover from disaster disruption 

201 See, e.g., Treasury, OFR Fact Sheet: Climate Data and Analytics Hub (July 2022),

https://www.financialresearch.gov/press-releases/files/OFR_Climate_data_and_analytics_hub_fact_sheet.pdf.

202 “Market Conduct Regulation,” NAIC.

203

“Market Conduct Regulation,” NAIC.

204 NAIC, Market Regulation Handbook Vol. 1-IV (2022), available through https://content.naic.org/publications. 

See also NAIC, Market Regulation Handbook – Examination Standards Summary, 

https://content.naic.org/sites/default/files/publication-mes-hb-market-handbook-examination.pdf.

205 NAIC, Market Regulation Handbook, 129-130.

206 NAIC, Market Regulation Handbook, 129 (noting that competitive pricing and availability of products “are the 

traditional core concerns of macroanalysis, since it is always essential to identify underserved markets and 

population sectors and evaluate how the industry and the state can best work together to correct the situation.”).

207 See, e.g., Samuel Rufat, et al., “Social Vulnerability to Floods: Review of Case Studies and Implications for 

Measurement,” International Journal of Disaster Risk Reduction 14 (4): 470–86 (December 2015), 

https://doi.org/10.1016/j.ijdrr.2015.09.013.
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and hardships.208 In addition, observers have noted that individuals with socio-economic 

vulnerabilities may live in areas where it is difficult to obtain or maintain insurance coverage.

209

Climate-related risks implicate several aspects of market conduct regulation and supervision. As

described below, state insurance regulators are already addressing climate-related risks in key 

aspects of market conduct regulation and supervision, although new challenges are emerging.

Market Conduct Tools and Standards Generally: In 2002, the NAIC developed the Market 

Conduct Annual Statement as a uniform means for state insurance regulators to collect marketrelated information. Using this, regulators now collect national and state level claims and 

underwriting data on several lines of business, including homeowners and private passenger auto 

insurance.210 State insurance regulators undertake examinations to assess the market conduct 

practices of regulated entities within their jurisdictions, with guidance from the NAIC Market 

Regulation Handbook, focusing on compliance with laws addressing operations, complaint 

handling, marketing, claims, rate and form filing, and policyholder service.211 The NAIC Market 

Regulation Handbook does not specifically reference climate-related risks.

212

Underwriting, Rating, Renewals, and Cancellations: When underwriting, an insurer assesses 

and decides whether to accept the risks associated with covering a prospective customer. In rate 

making, an insurer uses the information obtained in underwriting to determine the appropriate 

amount to charge for the class of business in question in order to cover anticipated losses and 

expenses and still provide a reasonable profit to the insurer.213 Market conduct regulation 

208 See, e.g., Carolyn Kousky & Karina French, Inclusive Insurance for Climate-Related Disasters: A Roadmap for 

the United States (2023), available through https://www.ceres.org/resources/reports/report-inclusive-insuranceclimate-related-disasters.

209 See, e.g., Karina French, “Economic Resilience to Climate Impacts Requires Making Disaster Insurance More 

Inclusive in the US,” Market Forces (January 24, 2023), https://blogs.edf.org/markets/2023/01/24/economicresilience-to-climate-impacts-requires-making-disaster-insurance-more-inclusive-in-the-us/.

210 Randy Helder, “The Market Conduct Annual Statement Comes of Age,” CIPR, January 2012, 

https://naic.soutronglobal.net/Portal/Public/en-US/RecordView/Index/24282; “Market Conduct Annual Statement,” 

NAIC, last updated February 1, 2023, https://content.naic.org/cipr-topics/market-conduct-annual-statement-mcas. 

While insurers’ Market Conduct Annual Statement filings are confidential, some of the information provided is 

made publicly available through a “Scorecard.” See “MCAS Scorecard and MCAS Contacts,” NAIC, 

https://content.naic.org/mcas_data_dashboard.htm.

211 See, e.g., Market Conduct Surveillance Model Law (NAIC 2004),

https://content.naic.org/sites/default/files/inline-files/MDL-693.pdf; NAIC, Market Regulation Handbook: 

Examinations Standards Summary (2022), https://content.naic.org/sites/default/files/publication-mes-hb-markethandbook-examination.pdf (Market Regulation Handbook Summary).

212 In contrast, the Examiners Handbook includes optional material on climate-related risks, as discussed in Section 

II.C.1.c.iv.

213 See, e.g., “Underwriting (Definition),” IRMI, https://www.irmi.com/term/insurance-definitions/underwriting;

“Rate (Definition),” IRMI, https://www.irmi.com/term/insurance-definitions/rate.
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includes the approval of insurance rates to ensure that they are not excessive, while maintaining 

insurer solvency and preventing unfair discrimination.214

State insurance regulators may consider climate-related disasters and their impacts when they 

supervise insurers’ underwriting and rating of insurance policies, including policy renewals and 

cancellations. For example, as part of the Market Conduct Annual Statement data collection 

system, participating state insurance regulators track key ratios—such as the ratio of nonrenewals (or cancellations) to policies in force—to identify insurers that are inconsistent with 

market practices.215

More research is needed, however, to better understand whether and how the process by which 

states approve insurance rate increases may lead to misalignment of rates and climate-related 

risks. One study found that insurance rates in states where rate regulation is least restrictive

(“low friction states”) increase both in response to local losses as well as to losses that occur in 

states where rate regulation is most restrictive (“high friction states”) and, as a result, 

“households in low friction states are in-part bearing the risks of households in high friction 

states.”216

Regulators sometimes can use their market conduct authority to address underwriting, 

cancellation, and non-renewal in connection with climate-related events. Examples of such steps 

include the following:

• California’s Department of Insurance administers a law requiring a one-year moratorium 

on cancellation or non-renewal of residential insurance policies in areas affected by 

wildfire; since 2018, this moratorium has been used in connection with 25 emergency 

declarations.217

• After the Marshall and East Troublesome wildfires, the Colorado Division of Insurance 

released a consumer advisory providing information on the requirements to which 

insurers are subject if they choose not to renew a policy.218

• The New Mexico Office of Superintendent of Insurance issued a wildfire emergency 

order directing insurers who wrote property or homeowners premiums in fire impacted 

214 See, e.g., “Market Conduct Regulation,” NAIC; NAIC, Market Regulation Handbook Summary, 3.

215 “Market Conduct Annual Statement Scorecard,” NAIC, https://content.naic.org/mcas_data_dashboard.htm. 

Nearly all states participate.

216 See Sangmin Oh, et al., Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies (December 22, 

2022). https://ssrn.com/abstract=3762235.

217 “Mandatory One Year Moratorium on Non-Renewals,” California Department of Insurance, 

https://www.insurance.ca.gov/01-consumers/140-catastrophes/MandatoryOneYearMoratoriumNonRenewals.cfm.

218 Colorado Division of Insurance, “Consumer Advisory: When Your Homeowners’ Insurance Doesn’t Renew 

Your Policy,” news release, August 31, 2022, https://doi.colorado.gov/news-releases-consumeradvisories/consumer-advisory-when-your-homeowners-insurance-doesnt-renew.
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counties to, among other directives, postpone cancellations and non-renewals for no less 

than 120 days.219

• After Hurricane Ian, the Florida Office of Insurance Regulation issued an emergency 

order suspending cancellations or non-renewals on P&C insurance for two months, unless 

requested by the policyholder.220

Marketing, Sales, and Consumer Education: State laws regulating insurance marketing and 

NAIC consumer education initiatives could be particularly important in the context of climaterelated disasters, as a means of enhancing policyholders’ understanding of the scope of coverage

under their insurance policies. Generally, state insurance laws require that all insurance 

advertisements and other communications are “truthful and not misleading in fact or by 

implication.”221 Relatedly, the NAIC has a working group charged with, among other things, 

“[f]acilitat[ing] consumers’ capacity to understand the content of insurance policies and assess 

differences in insurers’ policy forms.”222 And state insurance regulators have issued consumer 

guidance to help combat common misconceptions about the scope of coverage for various 

perils.223

Yet policyholders continue to have such misconceptions. The Minnesota Department of 

Commerce, for example, advised homeowners to check deductibles and exclusions on their 

homeowners policies following a nearly 20 percent increase in complaints since 2020, primarily 

around coverage denials or high costs after wind or hailstorms.224 Also, many policyholders may 

be unaware that their standard homeowners insurance policies do not cover flood risk, despite 

numerous attempts by the Federal Emergency Management Agency (FEMA) and state insurance 

regulators to educate consumers.225 Federal agencies also have worked to promote financial 

literacy more generally, including through the FLEC.226 Treasury, in coordination with the 

219 New Mexico Office of Superintendent of Insurance, Emergency Order 2022-0041 (May 11, 2022), 

https://edocket.osi.state.nm.us/api/documents/5762-002.

220 FLOIR, Emergency Order 300997-22 (September 28, 2022), https://www.floir.com/docs-sf/default-source/floirdocuments/hurricane-ian-emergency-order-with-all-exhibits-09282022-filed.pdf?sfvrsn=fb033799_2.

221 See, e.g., NAIC, Market Regulation Handbook, 312.

222 “Transparency and Readability of Consumer Information (C) Working Group,” NAIC, 

https://content.naic.org/cmte_c_trans_read_wg.htm.

223 See, e.g., “Windstorm and Hail,” North Carolina Department of Insurance, 

https://www.ncdoi.gov/consumers/homeowners-insurance/windstorm-and-hail#named-storm-percentagedeductibles.

224 Minnesota Department of Commerce, “MN Commerce Advises Minnesota Homeowners to Check Insurance 

Coverage for Wind, Hail limits,” news release, August 15, 2022, https://mn.gov/commerce/news/?id=17-537615.

225 See, e.g., “Myths and Facts About Flood Insurance,” FEMA, November 18, 2020, https://www.fema.gov/factsheet/myths-and-facts-about-flood-insurance; Louisiana Department of Insurance, Post-Disaster Insurance Guide, 

7-8, https://www.ldi.la.gov/docs/default-source/documents/publicaffairs/consumerpublications/post-disasterguide.pdf?sfvrsn=9.

226 See “Financial Literacy and Education Commission,” Treasury, https://home.treasury.gov/policyissues/consumer-policy/financial-literacy-and-education-commission.
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FLEC, is developing a report on the impact of climate change on households and 

communities.227

Recommendation 17: The NAIC, state insurance regulators, the insurance industry, FIO, the 

FLEC, and other partners should work together to increase consumer education and outreach 

regarding what climate-related risks are (and are not) commonly covered under personal lines 

of insurance and take steps to increase public awareness of the nature and magnitude of climaterelated risks. They also should continue encouraging consumers to take advantage of 

educational and outreach programs in markets vulnerable to climate change, including 

programs related to the value of, and opportunities for, pre-disaster mitigation investments in 

property resilience. Public-private partnerships with the insurance industry can aid this 

educational effort.

Disaster Response: States insurance regulators have well-established practices for regulatory 

oversight of market conduct concerns relating to all types of disasters, including climate-related 

disasters. Tools available to state insurance regulators to address market conduct matters during 

disaster responses include, but are not limited to the following:

• Extending the deadline for policyholders to submit notices of claims to insurers;228

• Extending the timeline for policyholders to complete repairs;229

• Barring insurers from cancelling or not-renewing policies for failure to timely remit 

premiums while disaster declarations are in effect;230

• Implementing emergency licensing provisions so that out-of-state adjusters may 

supplement the pool of available claims adjusters;231

• Conducting data calls in order to obtain detailed information on claims from catastrophic 

events;232 and

227 Treasury, “Treasury Launches Effort to Study Impact of Climate Change on Households and Communities,” 

news release, October 13, 2021, https://home.treasury.gov/news/press-releases/jy0404.

228 See, e.g., New Mexico Office of Superintendent of Insurance, Emergency Order 2022-0041 (May 11, 2022), 

https://edocket.osi.state.nm.us/api/documents/5762-002.

229 See, e.g., Oregon Department of Consumer and Business Services Division of Financial Regulation, Bulletin No. 

DFR 2022-3 (August 4, 2022), https://dfr.oregon.gov/laws-rules/Documents/Bulletins/bulletin2022-03.pdf.

230 See discussion above on “Underwriting, Rating, Renewals, and Cancellations.”

231 See, e.g., “Emergency Adjuster Information,” Alabama Department of Insurance, 

https://www.aldoi.gov/licensing/emergencyadjusterinfo.aspx; “Temporary Emergency Independent Adjuster 

License,” Indiana Department of Insurance, https://www.in.gov/idoi/adjusters/temporary-emergency-independentadjuster-license/.

232 See, e.g., “Final Compilation of Hurricane Harvey Data,” Texas Department of Insurance, June 30, 2019,

https://www.tdi.texas.gov/reports/documents/harvey-dc-final-06302019.pdf.
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• Coordinating with other states and/or the NAIC to provide technical support and/or assist 

with responding to policyholder concerns and complaints when a state insurance 

regulator’s own operations are affected by a disaster.233

Regulators should remain proactive about monitoring insurers’ claims adjustments and denials, 

particularly from smaller or regional insurers, as there have been reports that some of these 

insurers may have significant exposure to a specific climate-related disaster. In addition, state 

insurance regulators and state legislators with input into state budgets should consider that with 

the increased frequency and severity of climate-related disasters, regulators may in the future 

need additional resources to fulfill their post-disaster oversight role.

Recommendation 18: State insurance regulators and the NAIC should continue using existing 

frameworks for their post-disaster response efforts, including their focus on fair and efficient

resolution of claims. In addition, the NAIC and state insurance regulators should conduct more 

post-disasters surveys to assess the claims resolution process, particularly with regard to 

whether insurers are fulfilling their obligations in a fair and efficient manner.

Disclosure Initiatives

Disclosures are an important way to increase transparency about insurers’ business conduct by 

informing investors and market participants about key business information, including risk 

exposures and management, and allowing stakeholders to compare such information across 

insurers.234 Over the past several years, various regulators and organizations have sought to 

identify the climate-related financial risk information that might be useful for companies, 

including insurers, to include alongside their other required and voluntary public disclosures.235

Regulators and other organizations have stressed the importance of ensuring decision-usefulness, 

consistency, and comparability in disclosures, including by aligning formats, types of 

information disclosed, and location.236

State insurance regulators have promoted disclosure of certain climate-related information 

through the NAIC Climate Risk Disclosure Survey, which has six purposes:

1. Enhance transparency about how insurers manage climate-related risks and opportunities;

233 See, e.g., “State Commissioners Assist Puerto Rico Insurance Department,” Insurance Journal, March 19, 2018, 

https://www.insurancejournal.com/news/national/2018/03/19/483794.htm.

234 See, e.g., NYSDFS, Climate Guidance for NY Insurers, 21; IAIS & SIF, Climate Application Paper, 31.

235 Disclosures required by regulators include the annual financial filings discussed in Section II.C.1.c.i, while 

voluntary disclosures cover a different set of information.

236 See e.g., NYSDFS, Climate Guidance for NY Insurers, 21-22; “NAIC Climate Risk Disclosure Survey,” 

California Department of Insurance, http://www.insurance.ca.gov/0250-insurers/0300-insurers/0100-

applications/ClimateSurvey/; Treasury, “G7 Finance Ministers & Central Bank Governors Communiqué,” news 

release, June 5, 2021, https://home.treasury.gov/news/press-releases/jy0215; FSOC, Climate Report, 7 

(“Recommendation 3.8: Insurers—The Council supports continued efforts by FIO and insurance regulators to work 

together to enhance the existing climate-related disclosures for the insurance sector”).
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2. Identify good practices and vulnerabilities;

3. Provide a baseline supervisory tool to assess how climate-related risks may affect the 

insurance industry;

4. Promote insurer strategic management and encourage shared learning for continual 

improvement;

5. Enable better-informed collaboration and engagement on climate-related issues among 

regulators and interested parties; and

6. Align with international climate risk disclosure frameworks to reduce redundancy in 

reporting requirements. 237

As of May 2023, 15 states and D.C. require insurers operating in those jurisdictions that write 

more than $100 million in annual premiums to complete the survey.238

The purposes of the NAIC Climate Risk Disclosure Survey differ from the purpose of U.S. 

Securities and Exchange Commission (SEC) disclosures generally, which is to provide investors 

with the material information necessary for them to make informed investment decisions. The 

SEC proposed rule changes in March 2022 with respect to climate-related risks.239 If 

implemented, the proposed rules would apply to, among other registrants, over 110 public U.S.

insurance companies, accounting for over half of the U.S. P&C insurance market (by direct 

premiums written) and 55 percent of the life insurance market (by total net assets); 66 of these

public companies also participate in the NAIC Climate Risk Disclosure Survey.

240

Recommendation 19: The NAIC and state insurance regulators should support efforts to 

improve climate-related disclosures by the insurance industry, as analytical capabilities and best 

practices further develop. All state insurance regulators should adopt the NAIC Climate Risk 

Disclosure Survey. The NAIC should continue monitoring responses to its Climate Risk 

Disclosure Survey and publish an annual quantitative report summarizing the Survey results and 

addressing how well the Survey is fulfilling its six purposes.

In addition to the NAIC Climate Risk Disclosure Survey, both NYSDFS and CID have provided 

guidance to their domestic insurers, including on disclosures of climate-related information. 

237 See “NAIC Climate Risk Disclosure Survey,” California Department of Insurance.

238 The U.S. jurisdictions that required the NAIC Survey for the 2021 reporting year were California, Connecticut, 

D.C., Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New York, Oregon, 

Pennsylvania, Rhode Island, Vermont, and Washington. Illinois Department of Insurance (IDOI), “IDOI Calls on 

Insurers to Disclose Climate-Related Risks,” press release, October 13, 2022, https://idoi.illinois.gov/news/pressrelease.25558.html.

239 See SEC, The Enhancement and Standardization of Climate-Related Disclosures for Investors; Proposed Rule, 87 

Fed. Reg. 21,334 (April 11, 2022) (SEC Proposed Rule).

240 See, e.g., S&P Global data; Thomas Dawson, “Climate Change Regulatory Update for U.S. Insurers,” National 

Law Review, April 1, 2022, www.natlawreview.com/article/climate-change-regulatory-update-us-insurers; SEC 

Proposed Rule, 87 Fed. Reg. at 21,414. This compilation does not include public insurers listed abroad that also 

may have securities subject to SEC rules.
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Several international organizations have also identified approaches to climate-related disclosures, 

with the most widely recognized being the one issued by the Task Force on Climate-related 

Financial Disclosures (TCFD).

241

 The TCFD’s framework was published in Implementing the 

Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD 

Framework). (See Figure 3.)

Figure 3: Summary of Selected Disclosure Initiatives 

Initiative Description

NAIC Adopted in 2010, and amended in 2022 to be TCFD-aligned, the NAIC Survey is a voluntary 

disclosure mechanism for participating states. For the 2021 reporting year, 965 companies submitted 

completed surveys.

242

NYSDFS The NYSDFS issued final guidance in 2021 for New York domestic insurers detailing its

expectations related to insurers’ management of climate-related risks, including public disclosures.

CID CID finalized a bulletin in September 2022 for Connecticut domestic insurers related to insurers’

management of climate-related risks, including public disclosures.

TCFD In 2015, the Financial Stability Board convened the TCFD to develop voluntary climate-related 

financial disclosures in order to support informed investing, lending, and insurance underwriting. 

Nearly 4,000 organizations have expressed support for the TCFD Framework and regulators in 

several jurisdictions announced TCFD-aligned reporting requirements.243

Source: FIO analysis

While these initiatives are largely intended to serve similar purposes, they vary, thus reducing 

both comparability across companies that disclose under different frameworks and the decisionusefulness of climate-related disclosures for investors and other stakeholders.244

 The following 

discussions do not cover every aspect of each initiative but consider the extent of alignment and 

variation of these frameworks.

General Characteristics: The four Disclosure Initiatives differ in process, what information is 

considered material, and the extent to which standard elements are included.

241 The International Sustainability Standards Board (ISSB) also launched a consultation in March 2022 on climaterelated disclosures. Some international insurers operating in the United States and some U.S. insurers operating 

abroad could be expected to report under the ISSB standards once they are finalized. International Financial 

Reporting Standards Foundation (IFRS), Exposure Draft IFRS S2 Climate-related Disclosures (March 2022), 

https://www.ifrs.org/content/dam/ifrs/project/climate-related-disclosures/issb-exposure-draft-2022-2-climaterelated-disclosures.pdf.

242 “NAIC Climate Risk Disclosure Survey Results – Home,” California Department of Insurance,

https://interactive.web.insurance.ca.gov/apex_extprd/f?p=201:1. Responses covered U.S. companies as well as their 

foreign-domiciled subsidiaries and affiliates.

243 TCFD, 2022 Status Report (October 2022), 2, 99-100, https://assets.bbhub.io/company/sites/60/2022/10/2022-

TCFD-Status-Report.pdf.

244 New York and Connecticut both participate in and rely upon the NAIC Climate Risk Disclosure Survey; the text 

notes where they provide additional guidance.
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Disclosure Process: The NAIC, NYSDFS, and CID specify that disclosures should be made 

through the NAIC Climate Risk Disclosure Survey website maintained by the California 

Department of Insurance. The NYSDFS and CID note that insurers not covered by the NAIC 

survey may disclose the relevant information on their website or by augmenting public generalpurpose financial reports. The TCFD suggests that disclosures be made in annual filings, though 

many companies choose to make TCFD disclosures in standalone reports. The NAIC Climate 

Risk Disclosure Survey website allows users to search for surveys and filter responses by 

information, including lines of business, insurer group, and, as of the 2021 reporting year, by 

TCFD recommendation. However, responses are primarily qualitative—with some standard 

yes/no questions to aid comparability—and users cannot search specific terms, thus requiring 

them to download the full dataset and manually compare responses. In addition, insurers may 

submit a TCFD report in lieu of filling in the survey. Responses may be in the form of a .pdf, 

text, or a combination, and may be for individual companies or groups. Differences in reporting 

format make it difficult to compare responses across companies, limiting the potential usefulness 

of the NAIC survey results.

Materiality: The Disclosure Initiatives specify that all, or most, disclosures should be material, 

but the definition of materiality varies. The NAIC, NYSDFS, and CID allow respondents to use 

either the definition of materiality from the SEC or from the Examiners Handbook (see Box 1). 

However, the TCFD Framework subjects strategy and most metrics and targets to a materiality 

standard “consistent with how they determine materiality of other information included in their 

annual financial filings.” 245 In comparison, the TCFD requests companies disclose other topics 

like governance and risk management independent of a materiality assessment. The different 

materiality definitions could result in the production of non-standardized information across 

companies.

Standard Elements: The Disclosure Initiatives differ in whether they include standard elements 

that foster comparability across companies. The NAIC survey includes standardized elements, 

with 22 yes or no questions that all reporting companies must answer starting in the 2022 

reporting year. Other responses can be of any length or format, reducing the degree of 

comparability. The TCFD Framework does not include standard elements.

Governance Disclosures: All four Disclosure Initiatives call for a description of board and 

management oversight of climate-related risks, as well as information on which management 

roles are assigned that responsibility. The NAIC, NYSDFS, and CID ask companies to identify 

publicly stated goals and describe whether climate-related disclosure is handled at the group 

level, entity level, or a combination. The TCFD asks for information on the processes and 

frequency of board oversight and on the oversight of any climate-related targets.

Strategy Disclosures: As summarized in Figure 4, the Disclosure Initiatives vary on the type of 

strategy information that must be disclosed.

245 TCFD, Framework, 8.
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Figure 4: Strategy Disclosure Standards

NAIC NYSDFS CID TCFD

Provides default time horizons Yes Yes Yes No

Financial impacts No No No Yes

Use of scenario analysis

Disclosure of scenario analysis, if used Yes Yes Yes Yes

Requires quantification No Yes No No

Source: FIO analysis

Time Horizons: All Disclosure Initiatives ask companies to define relevant short-, medium-, and 

long-term time horizons for climate-related risks. The NAIC, NYSDFS, and CID provide 

default time horizons for consideration: 1 to 5 years for the short term, 5 to 10 years for the 

medium term, and 10 to 30 years for the long term. Such specification of default time frames 

could be an important driver of comparability for future disclosures.

Financial Impacts: The NAIC, NYSDFS, and CID require insurers to “[d]isclose the actual and 

potential impacts of climate-related risks and opportunities on [their] businesses, strategy, and 

financial planning” but do not specify that these disclosures should include quantified estimates 

of financial impacts.246 The TCFD encourages disclosure of quantitative financial impacts.247 

Incorporation of quantitative elements can aid decision-usefulness and comparability.

Use and Disclosure of Scenario Analysis: All of the Disclosure Initiatives agree that, if a 

company has conducted climate-related scenario analysis, it should disclose information about it, 

but they diverge on scenario analysis expectations. More prescriptive expectations can improve 

the comparability of results across insurers but can increase the burden of compliance, especially 

for smaller firms. The NAIC, NYSDFS, and CID specify that insurers should discuss the 

scenarios used to analyze both their underwriting and investment risks, with the NYSDFS 

providing more details on risks to include and impacts to assess.

Risk Management Disclosures: All four Disclosure Initiatives include some guidance around 

climate-related risk identification, risk management, and integration into overall risk 

management. In addition, the NAIC, NYSDFS, and CID require insurers to discuss underwriting 

exposure to physical, transition, and litigation risks and to discuss steps taken to encourage 

policyholders to manage their climate-related risks. The TCFD asks insurers to describe the 

range of climate-related events considered, distinguish risk management processes across 

geographies, divisions, or business segments, and disclose engagement with companies in which 

the insurer invests as part of its asset owner activities.

246 NAIC, Climate Risk Disclosure Survey, 6.

247 TCFD, Framework, 18.
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Metrics and Targets Disclosures: Figure 5 summarizes some of the ways in which the four 

Disclosure Initiatives approach disclosure of metrics and targets.

Figure 5: Metrics and Targets Disclosure Standards

NAIC NYSDFS CID TCFD

Climate-related metrics Yes Yes Yes Yes

Climate-related targets, if set Yes Yes Yes Yes

Target type (absolute or intensity based), 

baseline period, and interim targets

No No No Yes

Source: FIO analysis

Climate-Related Metrics: All of the Disclosure Initiatives call for disclosure of climate-related 

metrics generally but differ on which metrics to include. For example, the NAIC, NYSDFS, and 

CID do not mention either internal carbon prices or executive remuneration, while the TCFD 

recommends their disclosure when relevant or when climate-related issues are material.

248

 The 

initiatives agree that Scope 1 and 2 GHG emissions should be disclosed and that disclosure of 

Scope 3 GHG emissions can be useful in some cases. 249

Climate-Related Targets: All of the Disclosure Initiatives call for disclosure of climate-related 

targets. The NYSDFS specifies that companies must provide disclosure on any changes to their 

targets and the rationale for such changes. The TCFD provides additional specificity, requesting 

information on type of target (absolute or intensity), baseline period, and interim targets.

Based on its analysis outlined above, FIO notes that while in general these disclosure initiatives 

are aligned at a high level, they differ in the level of prescriptiveness and quantification—which 

can result in different climate-related information being submitted by companies that report

under different disclosure frameworks. Though less prescriptive guidance can help insurers of 

different sizes and complexities adapt the survey to their needs, such initiatives may be less 

effective in enhancing the ability of stakeholders to compare responses across insurers and 

jurisdictions, thereby limiting the potential usefulness of such disclosures for risk assessment by

regulators, stakeholders, and market participants. The revisions to the NAIC Climate Risk 

Disclosure Survey, as well as the inclusion of standard yes/no questions to aid comparability, are 

a welcome step forward. However, the NAIC survey results remain largely qualitative and are 

currently difficult to analyze quantitatively across respondents.

248 Internal carbon prices refer to the price on each ton of GHG emissions used internally by an organization. See 

TCFD, Framework, 80.

249 Scope 1 GHG emissions are from sources controlled or owned by an organization; Scope 2 are associated with 

the purchase of electricity, steam, heat, or cooling, while Scope 3 are indirect emissions associated with an 

organization’s value chain and include investments and underwriting. See, e.g., Environmental Protection Agency 

(EPA), “Scope 1 and Scope 2 Inventory Guidance, www.epa.gov/climateleadership/scope-1-and-scope-2-inventoryguidance; EPA, “Scope 3 Inventory Guidance” https://www.epa.gov/climateleadership/scope-3-inventory-guidance.
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Recommendation 20: The NAIC should consider revising its Climate Risk Disclosure Survey 

over the next several years to incorporate more prescriptive elements, including around 

quantitative financial impacts, scenario analysis, and consistent metrics and targets, with the 

goals of enhancing: (a) transparency about how insurers manage climate-related risks and 

opportunities, (b) the identification of good practices and vulnerabilities, and (c) the assessment 

of how climate-related risks are affecting the insurance industry.
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III. ADDITIONAL FIO CLIMATE-RELATED PRIORITIES

To implement the insurance-related directives in EO 14030, FIO formulated several climaterelated priorities, announced in 2021.

250

 These priorities include the assessment of climaterelated issues or gaps in the supervision and regulation of insurers, which overlaps with FIO’s 

work in furtherance of FSOC’s climate recommendations and is discussed in Section II. This 

section provides updates on additional FIO priorities, including: assessing the potential for 

major disruptions of private insurance coverage in U.S. markets that are particularly vulnerable 

to climate change impacts (including FIO’s proposed data collection); conducting quantitative 

analysis on the transition exposure of insurers’ investments; helping to review causes of, and 

potential solutions to, protection gaps for climate-related disasters; facilitating disaster mitigation 

and resilience; and increasing engagement on climate-related issues to leverage the insurance 

industry’s ability to achieve climate-related goals.

Assessing Climate-Related Market Disruptions

As climate-related risks increase, insurers can be expected to adapt their underwriting in various 

ways, some of which could have potentially adverse implications for the availability and 

affordability of insurance coverage in certain insurance markets. Exposure to the potential for

increased climate-related losses might cause insurers, among other things, to increase premiums, 

modify policy terms and conditions, or withdraw from certain regions and lines of business. 

Some insurers, for example, have announced that they will no longer write new homeowners 

insurance in California, citing increased catastrophe exposure as one reason.251 In addition, in 

Louisiana, a state prone to climate-related disaster, a survey of residents found that 17 percent of 

homeowners insurance policyholders reported having had their policy canceled last year.252 

These types of actions may make it more difficult for individuals and businesses to find or afford 

the insurance they need, potentially reducing individual and collective resilience to climaterelated shocks.

253 They also could increase demand for coverage through residual or nonstandard markets, potentially for higher premiums, and generally reduce financial resilience to 

climate-related shocks. Such insurance market disruptions also could have knock-on effects for 

housing markets in those areas. By one estimate from Swiss Re, climate-related risks could add 

250 FIO described its climate-related priorities in its Climate Risk RFI, 86 Fed. Reg. 48,814 (August 31, 2021).

251 See, e.g., Christopher Flavelle, et al., “Climate Shocks Are Making Parts of America Uninsurable”; Iman Palm, 

“Allstate Stops Accepting New Property Insurance Applications in California,” KTLA, June 2, 2023, 

https://ktla.com/news/california/allstate-quietly-stopped-accepting-new-insurance-applications-from-californiahomeowners/; Chad Hemenway, “AIG to Move High Net Worth Homeowners to E&S.” 

252 Reilly Center for Media & Public Affairs, The Louisiana Survey (2023), 4, 

https://www.lsu.edu/manship/research/centerslabs/rcmpa/research/la_survey_reports_pdf/2023_la_survey_full_report.pdf.

253 Policyholders may rely on insurers to help protect them from loss and recover from climate-related disasters. 

Insurance serves as a key risk transfer mechanism for households and businesses for climate-related risks. See, e.g., 

FSOC, Climate Report, 1-2. Insured disaster survivors recover more fully than non-insured survivors, lessening the 

financial burden on policyholders as well as enhancing community recovery and disaster mitigation efforts. See, 

e.g., U.S. Department of Housing and Urban Development, Insurance to Mitigate the Impacts of Disasters or Fund 

Disaster Recovery (2019), https://www.huduser.gov/portal/pdredge/pdr-edge-frm-asst-sec-111819.html.
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as much as $183 billion to property insurance premiums by 2040 (over one-fifth of overall 

projected cost increases), as insurers raise prices in response to climate-related developments.254

Executive Order 14030 instructs FIO to, among other things, “further assess, in consultation with 

States, the potential for major disruptions of private insurance coverage in regions of the country 

particularly vulnerable to climate change impacts.”255 FIO has begun this work to advance the 

development of a comprehensive, quantitative assessment of the potential major disruptions of 

insurance markets in regions of the country particularly vulnerable to climate change impacts. In

June 2022, FIO contacted insurance regulators in the 50 states, the District of Columbia (DC), 

and the five U.S. territories. FIO described the data it would be seeking in a template and 

requested a response as to whether each regulator would be able to provide all of the data 

requested in the template upon request. Based on the responses received, FIO determined that 

the data described in the template is either not available or cannot be obtained in a timely manner

from any of the states, D.C., or the five U.S. territories.

FIO issued a request for comment in October 2022 on a proposed collection of nationwide data 

from P&C insurers regarding current and historical homeowners insurance underwriting.256 The

request for comment states that the “proposed data collection will assist FIO’s assessment of 

climate-related exposures and their effects on insurance availability for policyholders, including 

whether climate change may create the potential for any major disruptions of private insurance 

coverage in regions of the country particularly vulnerable to climate change impacts. FIO will 

also seek to assess any related effects on insurance affordability for policyholders.”257 It also 

will advance FIO’s work in response to the related FSOC Climate Report recommendation.258

FIO’s proposed data collection is described in the public notice and in the associated draft data 

collection and template.259 FIO proposes to collect data relating to insurers’ underwriting 

metrics and related insurance policy information. The proposed data collection focuses on 

homeowners policies, excluding liability exposure, and seeks ZIP Code level information from 

2017-2021 for a limited set of fields, including policy information, claims, premiums, and 

254 Swiss Re, More Risk: The Changing Nature of P&C Insurance Opportunities to 2040 (September 2021), 1, 

https://www.swissre.com/dam/jcr:19f316fe-0381-42a9-8cfd-9794f746e421/swiss-re-institute-sigma-4-2021-en.pdf.

255 Exec. Order No. 14030, 86 Fed. Reg. 27,967.

256 FIO, Agency Information Collection Activities; Proposed Collection; Comment Request; Federal Insurance 

Office Climate-Related Financial Risk Data Collection, 87 Fed. Reg. 64,134 (October 21, 2022) (Proposed Data 

Collection FRN). The FRN links to additional instructions and an example template for insurers to complete. See 

FIO, Climate-Related Financial Risk Proposed Data Collection: Instructions (October 18, 2022), 

https://home.treasury.gov/system/files/311/FIO-Proposed-Climate-Data-Call-Instructions.pdf; FIO, Climate-Related 

Financial Risk Proposed Data Collection: Template (October 18, 2022), 

https://home.treasury.gov/system/files/311/FIO-Proposed-Climate-Data-Call-Template.xlsx.

257 Proposed Data Collection FRN, 87 Fed. Reg. at 64,134.

258 “The Council recommends that the Federal Insurance Office (FIO) should act expeditiously to analyze the 

potential for climate change to affect insurance and reinsurance coverage, particularly in regions of the country 

affected by climate change, in consultation with the States, in a manner consistent with Executive Order 14030.” 

Recommendation 1.7, FSOC, Climate Report, 6.

259 Proposed Data Collection FRN, 87 Fed. Reg. 64,134.
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losses.260 FIO’s analysis will not focus on measuring the impact on earnings or capital to assess 

profitability or solvency of individual insurance companies. FIO proposes to collect data from 

insurers that write more than $100 million in annual homeowners premiums, which aligns with 

the premium threshold used in the NAIC Climate Risk Disclosure Survey. The proposed 

collection would gather data from additional insurers in the states potentially most vulnerable to 

climate change according to the National Risk Index, to ensure capturing at least 80 percent 

market share in each such state.

261

The comment period on FIO’s proposed data collection closed in December 2022. FIO is 

assessing next steps.

Analyzing the Potential Transition Exposure of Insurers 

As FSOC noted, U.S. insurers own nearly $7 trillion in net admitted invested assets, some of 

which may be exposed to climate-related transition risks that could manifest through defaults or 

impairments.

262

 It is therefore important for both insurers and regulators to consider the extent 

and potential significance of insurers’ exposure to climate-related transition risks.

FIO is undertaking an analysis of such exposure, using the Paris Agreement Capital Transition 

Assessment (PACTA) methodology. Building upon prior work of state insurance regulators 

such as NYSDFS and the California Department of Insurance, FIO is conducting the first 

nationwide analysis of insurers’ transition exposures, risks, and opportunities. This section 

summarizes the PACTA approach and FIO’s initial observations.

263

PACTA is one of several methodologies available to assist regulators and insurers in analyzing

transition risks and informing disaster mitigation actions. It is an open-source tool used by many

institutions, including the NYSDFS, the California Department of Insurance, the European 

260 Several states collect, or have collected, ZIP Code level information on homeowners policies, including 

California, Florida, Illinois, Massachusetts, Missouri, Tennessee, and Texas. See Proposed Data Collection FRN. 

Additionally, Colorado issued a study assessing the stability, availability, and affordability of homeowners insurance 

at a ZIP Code level. Colorado Department of Regulatory Agencies – Division of Insurance, “Homeowners

Insurance Availability Study Now Available (SB22-206),” news release, April 10, 2023, 

https://doi.colorado.gov/announcements/homeowners-insurance-availability-study-now-available-sb22-206.

261 The National Risk Index is a publicly available dataset on natural hazards and social vulnerability that combines 

historical county level risk data across 18 hazard types, though it does not include projections of future risk due to 

climate change. “Learn More,” FEMA National Risk Index, https://hazards.fema.gov/nri/learn-more.

262 FSOC, Climate Report, 42, 116 (noting, inter alia, California and New York’s insurer investment exposure 

analyses); S&P Global data.

263 See, e.g., NYSDFS & 2 Degrees Investing Initiative, An Analysis of New York Domestic Insurers’ Exposure to 

Transition Risks and Opportunities from Climate Change (June 20, 2021), https://2degrees-investing.org/wpcontent/uploads/2021/06/DFS_2DII_ report_NY-Insurers-Transition-Risks.pdf; California Department of Insurance 

& 2 Degrees Investing Initiative, 2° Scenario Analysis: Insurance Companies Operating in California (2019), 

https://interactive.web.insurance.ca.gov/apex_extprd/cdi_apps/r/250/files/static/v54/2018_full_report.pdf. See also

FSOC, Climate Report, 42 (describing state insurance regulators’ use of PACTA analysis).
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Insurance and Occupational Pensions Authority, and the Bank of England.264 The results 

developed by the PACTA framework are dependent upon the assumptions, methodological 

choices, modelling basis, and scenarios used, and the outcomes generated by the PACTA 

framework should be interpreted in light of such assumptions.

The PACTA analysis is premised on an assessment of seven sectors: (1) power generation, 

(2) oil and gas extraction, (3) coal mining, (4) automotive manufacturing, (5) steel 

manufacturing, (6) cement manufacturing, and (7) aviation. These seven “PACTA Scope 

sectors” represent those sectors mapped by the PACTA methodology, which global emissions 

data suggests are the largest sources of GHG emissions. For example, the power, automotive, 

steel, cement and aviation sectors account for approximately 70 percent of CO2 emissions 

globally.

265 One of the limitations of the PACTA methodology is that it does not include certain

sectors that may be considered to have high GHG emissions, such as real estate, shipping, 

agriculture, or oil and gas refining and distribution. Such sectors are not included because the 

PACTA methodology has not yet mapped climate scenario alignment to these sectors.

FIO’s analysis started with over $6 trillion of invested assets reported by all life and P&C 

insurers domiciled in the United States in their Schedule D filings as of December 31, 2021.266 

This figure is approximately 87 percent of the total cash and invested assets reported by such 

insurers in the general account. The PACTA methodology currently assesses only exposures 

from public corporate bonds and listed equities, which reduces the above figure to $2.9 trillion. 

FIO’s preliminary analysis shows that the current exposure of this segment of insurers’

investment portfolios to PACTA Scope sectors is approximately $439 billion, or 15 percent of 

the $2.9 trillion analyzed. This exposure analysis is just the first step in the PACTA approach. 

FIO will continue assessing the PACTA approach and, in future work, include a more detailed 

assessment of insurers’ portfolio alignment and potential for transition risk as part of its overall 

quantitative assessment of climate-related financial risk.

264 “PACTA / Climate Scenario Analysis Program,” 2 Degrees Investing Initiative, https://2degreesinvesting.org/resource/pacta/. See also Rocky Mountain Institute, “2° Investing Initiative Transfers Stewardship of 

PACTA to RMI,” news release, June 8, 2022, https://rmi.org/press-release/2-degree-investing-initiative-transfersstewardship/.

265 Estimate based on 2019 GHG emissions data taken from “Global Energy Review: CO2 Emissions in 2021,” 

International Energy Agency (IEA), https://www.iea.org/reports/global-energy-review-co2-emissions-in-2021-2.

266 “Data Products: Schedules D, DA, and DB,” NAIC, https://content.naic.org/prod_serv_idp_sched_d.htm. The 

analysis generally covers all U.S. domiciled life and P&C insurers and is based on publicly traded corporate bond, 

unaffiliated stock, and stock fund holdings reported in insurance company Schedule D - Part 1 & 2 of the 2021 

Annual Statement Filing submissions to the NAIC. This analysis does not include additional invested assets held by

insurers that are reported on Schedule D (e.g., Treasury bonds, municipal bonds, structured securities, private 

placements, and bank loans). This analysis also excludes assets appearing on other investment schedules (Schedule 

A, B and BA), such as commercial mortgages, private equity, and other alternative investments. Invested assets 

held in separate accounts, which are maintained independently from a life insurer's general account and not owned 

by the insurer, are also not included in this analysis.
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Reviewing Protection Gaps

Insurance does not cover all economic losses from climate-related disasters. In 2022, the United 

States suffered over $165 billion in total economic losses from climate-related disasters, of 

which insurance covered about 60 percent (i.e., approximately $99 billion).267 (See Figure 6.)

Figure 6: U.S. Climate-Related Disaster Losses 2013-2022

Source: “Current Table and Archived Tables for Facts + Statistics: U.S. Catastrophes,” Insurance Information 

Institute, https://www.iii.org/table-archive/21420 (citing different data sources, depending on year.) FIO excluded 

earthquake losses.

Insurance regulators and others around the world are looking at the potential causes of, and 

possible solutions for, protection gaps.268 A protection gap—that is, the difference between 

economic losses and insured losses—can indicate that policyholders and potential policyholders 

are facing challenges in finding insurance.269 The protection gap generally is larger than the 

insurance protection gap (i.e., “the difference between the amount of insurance that is 

economically beneficial and the amount of coverage actually purchased”).270 Nevertheless, as

one industry source stated: “Underinsurance for natural catastrophe events has increased over 

time and the resulting economic and insured losses have grown on average by about 5% annually 

267 See Aon, Weather, Climate and Catastrophe Insights, 26.

268 See, e.g., IAIS, Newsletter (December 2022/January 2023), 13,

https://www.iaisweb.org/uploads/2023/01/230131-IAIS-Newsletter-Dec-2022-Jan2023.pdf.

269 See, e.g., Kai-Uw Schanz & Shaun Wang, ed., The Global Insurance Protection Gap: Assessment and 

Recommendations (2014), 35, https://www.genevaassociation.org/sites/default/files/research-topics-documenttype/pdf_public/ga2014-the_global_insurance_protection_gap_1.pdf.

270 See, e.g., Kai-Uwe Schanz, Understanding and Addressing Global Insurance Protection Gaps, 1, 

https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_public/research_brief_-

_global_insurance_protection_gaps.pdf.

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

U.S. Climate-Related Disaster 

Losses ($Billions)

Insured Losses

Uninsured Losses
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since 1999.”271 The “root causes of underinsurance” may include: difficulties estimating the 

replacement value of assets, underestimating the frequency and risk of climate-related 

catastrophe events, and, often most significantly, lack of affordability.272

With more climate-related disasters and potentially growing protection gaps in some regions, 

those with low and moderate incomes will feel the greatest impact in the insurance markets 

under the most stress, as compared to less vulnerable populations and markets. In stressed 

markets, insurers are more likely to increase premiums (and/or reduce coverage availability), and 

people with low and moderate income may have the least ability to pay the increasing cost of 

higher insurance premiums.

More generally, people with low income or people of color in traditionally underserved 

communities may be disproportionately harmed by climate-related disasters for a variety of 

reasons. These reasons include that they may live in higher-risk areas or in housing that is less 

disaster-resilient and lack necessary information or resources (including funding) to prepare for 

and recover from climate-related disasters.273 One way to reduce protection gaps is to increase 

disaster mitigation in order to reduce future damages, as discussed in the next section.

Facilitating Disaster Mitigation and Resilience

For many climate-related risks, as with a wide range of man-made and non-weather-related

catastrophes such as earthquakes, the most effective actions may be those taken before disaster 

strikes. Mitigation, that is, the reduction of risk, helps “the whole community keep hazards from 

turning into disasters” and improves resilience for more efficient, effective, and rapid recovery 

from disasters.274 Disaster mitigation measures include, for example, construction built to meet 

or exceed modern building code standards, building retrofits, removing brush around structures 

in wildfire-prone areas, voluntary buyout programs for properties that are repeatedly flooded,

and a range of flood control efforts.

275

 Studies suggest that certain types of mitigation may save 

up to $11 for every $1 invested in risk reduction.

276

271 Federal Advisory Committee on Insurance (FACI) Protection Gap Subcommittee, “Addressing the Protection 

Gap Through Public/Private Partnerships & Other Mechanisms” (presentation, FACI, Washington, DC, December 

5, 2019), https://home.treasury.gov/system/files/311/December2019FACI_ProtectionGapProposedRecs.pdf.

272 See, e.g., Schanz & Wang, ed., The Global Insurance Protection Gap: Assessment and Recommendations, 33-37.

273 See, e.g., Kousky & French, Inclusive Insurance for Climate-Related Disasters, 5.

274 Mitigation Framework Leadership Group (MitFLG), National Mitigation Investment Strategy (August 2019), 1, 

https://www.fema.gov/sites/default/files/2020-10/fema_national-mitigation-investment-strategy.pdf.

275 Among other federal government mitigation efforts, the National Initiative to Advance Building Codes is a 

whole-of-government approach to support community resilience to climate change through the adoption of modern 

building codes. See, e.g., White House, “Fact Sheet: Biden-Harris Administration Launches Initiative to Modernize 

Building Codes, Improve Climate Resilience, and Reduce Energy Costs,” news release, June 1, 2022, 

https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/01/fact-sheet-biden-harris-administrationlaunches-initiative-to-modernize-building-codes-improve-climate-resilience-and-reduce-energy-costs/.

276 See, e.g., National Institute of Building Sciences, Natural Hazard Mitigation Saves: 2019 Report (2019), 1, 

https://www.nibs.org/files/pdfs/NIBS_MMC_MitigationSaves_2019.pdf.
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Disaster mitigation and resilience efforts can reduce risks to residents and businesses and 

improve the ability of insurers to manage their financial exposure to increasingly frequent and 

severe climate-related events. Due to its significant benefits, disaster mitigation is supported by 

state, industry, and federal efforts, as described below. FIO will continue to emphasize the 

importance of both insurance and of disaster mitigation.

277

State insurance regulators have collectively acknowledged the value of disaster mitigation. The 

goal of the NAIC’s Climate and Resiliency Task Force, for example, includes to “[i]dentify 

sustainability, resilience and mitigation issues and solutions,” including through its Pre-Disaster 

Mitigation Workstream.278 Among other efforts, the NAIC has supported mitigation efforts 

through workshops, research on funding resources, and publication of mitigation measures.279

Significantly, several states have created incentive programs for property owners that have 

undertaken disaster mitigation measures. For example, in response to the 1992 devastation of 

Hurricane Andrew on south Florida and its insurance market (including the failure of 11 

insurers), Florida’s Division of Emergency Management created the Hurricane Loss Mitigation 

Program.280 This program, with an annual budget of $7 million, strengthens property resiliency 

by making retrofit grants to owners of residential, commercial, and mobile home properties to 

increase the ability of these structures to withstand hurricane-force winds and flooding.281 

Similarly, in June 2021, Louisiana enacted a law providing for discounts and insurance rate 

reductions for residential and commercial buildings built or retrofitted to reduce their 

vulnerability to windstorm events.282

Another example is that of the Massachusetts Division of Insurance, which has encouraged 

insurers to reduce wind deductibles for policyholders who install wind-resilient features on their 

property.

283 Similarly, the California Department of Insurance has adopted regulations that 

require insurers to factor policyholders’ wildfire safety actions into pricing of residential and 

277 See, e.g., FIO, 2021 Annual Report, 69.

278 “Climate and Resiliency (EX) Task Force,” NAIC, https://content.naic.org/cmte_ex_climate_resiliency_tf.htm.

279 See, e.g., NAIC, Adaptable to Emerging Risks: The State-Based Insurance Regulatory System is Focused on 

Climate-Related Risk and Resiliency (2021), 8, https://content.naic.org/sites/default/files/climate-resiliencyresource-report-adaptable-emerging-climate-related-risk-resiliency_2021.pdf; “Climate Risk and Resiliency 

Resource Center,” NAIC, https://content.naic.org/climate-resiliency-resource.htm.

280

“Hurricane Andrew 25 Years Later: As Memories Fade, Florida Weakens Building Codes,” USA Today, August 

23, 2017, https://www.news-press.com/story/news/2017/08/23/hurricane-andrew-25-years-later-memories-fadeflorida-weakens-building-codes/593029001.

281

“Hurricane Loss Mitigation Program,” Florida Division of Emergency Management, 

https://www.floridadisaster.org/dem/mitigation/hurricane-loss-mitigation-program.

282 Louisiana H.B. 451 (enacted June 1, 2021).

283 Massachusetts Division of Insurance, Annual Home Insurance Report for Calendar Year 2020 (2022), 10, 

https://www.mass.gov/doc/the-2020-massachusetts-market-for-home-insurance/download.
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commercial insurance coverage.284 Other states that encourage or require insurers to offer 

insurance-related incentives to property owners that have taken steps to mitigate storm loss 

include: Alabama, Connecticut, Florida, Georgia, Maryland, Mississippi, New Jersey, New 

York, North Carolina, Oklahoma, Rhode Island, South Carolina, and Texas.285

Insurance stakeholders generally support disaster mitigation and resilience measures.

286

 One 

consumer advocacy group suggested that there should be a coordinated “national effort to 

develop and implement mitigation and resilience standards and strategies to reduce exposure to 

climate change-driven risk including how insurance companies might contribute to such 

mitigation as part of the insurance package.”287 Similarly—and in line with FIO’s ongoing work 

with the Mitigation Framework Leadership Group (MitFLG)—an insurer “encourage[d] FIO to 

coordinate with federal agencies and to work expeditiously to identify additional government 

funding sources that could be used for mitigation for communities, consumers, and 

businesses.”288 Some commenters also expressed support for enhanced building codes and/or 

campaigns to spread information about property hardening.289

The insurance industry has undertaken various disaster mitigation efforts, including those 

mentioned in responses to the FIO Request for Information on the Insurance Sector and ClimateRelated Financial Risks issued in August 2021 (Climate Risk RFI).

290

 Some commenters 

highlighted the work of the insurance industry-sponsored Insurance Institute for Business & 

Home Safety, which is currently advancing work on Wildfire Prepared Home mitigation 

standards.291 

284 California Department of Insurance, “Commissioner Lara Enforces Nation’s first Wildfire Safety Regulation to 

Help Drive Down Cost of Insurance,” news release, October 17, 2022, http://www.insurance.ca.gov/0400-

news/0100-press-releases/2022/release076-2022.cfm.

285 See, e.g., “List of Mitigation Insurance Discounts and Tax Savings,” Smart Home America,

https://www.smarthomeamerica.org/fortified/discounts-and-incentives/list-of-fortified-discounts-and-incentives. 

See also Kousky & French, Inclusive Insurance for Climate-Related Disasters, 45.

286 Climate Risk RFI, 86 Fed. Reg. 48,814. For all responses, see “Federal Insurance Office Request for Information 

on the Insurance Sector and Climate-Related Financial Risks,” https://www.regulations.gov/document/TREAS-DO2021-0014-0001/comment.

287 Comment from Consumer Federation of America, 3 (November 15, 2021), 

https://www.regulations.gov/comment/TREAS-DO-2021-0014-0033.

288 Comment from Liberty Mutual Insurance Company, 3 (November 15, 2021), 

https://www.regulations.gov/comment/TREAS-DO-2021-0014-0029.

289 See, e.g., Comment from Swiss Re, 5 (November 15, 2021), https://www.regulations.gov/comment/TREAS-DO2021-0014-0061 (Swiss Re Comment); Comment from American Property Casualty Insurance Association, 1

(November 15, 2021), https://www.regulations.gov/comment/TREAS-DO-2021-0014-0034.

290 See also American Property Casualty Insurance Association, “What is Driving the Affordability and 

Accessibility Challenges for Homeowners Insurance in High-Risk Western States,” news release, November 2, 

2022, https://www.apci.org/media/news-releases/release/73621/.

291 See, e.g., Swiss Re Comment, 5. See also Insurance Institute for Business & Home Safety, “IBHS Advances 

Work on Wildfire Prepared Home Mitigation Standard,” news release, December 15, 2021, https://ibhs.org/ibhsnews-releases/ibhs-advances-work-on-wildfire-prepared-home-mitigation-standard/.
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Increasing Engagement

FIO continues to engage domestically and internationally on climate-related issues. For 

example, the Climate Risk RFI received significant input from numerous stakeholders, with over 

50 unique responses from over 5,300 signatories and including over 95 organizations.292 These 

responses have helped inform this Report. In addition, FIO is engaging with its Federal 

Advisory Committee on Insurance on issues relating to climate-related risk, including the 

establishment of a climate-focused subcommittee to advise on FIO’s work. As noted above, FIO 

also contributes to FSOC’s work on climate-related risks.

On the international side, FIO is a member of the NGFS and SIF.293 FIO contributed to the SIF’s

2021 Scoping Study on Nature-related Risks in the Global Insurance Sector.294 At the NGFS, 

FIO is collaborating on issues such as macroprudential analyses, supervision, scenario analysis, 

and capacity building. FIO also leads the Climate Risk Financial Oversight Workstream for the 

bilateral EU-US Insurance Dialogue Project.295 In addition, FIO is part of the U.S. delegation to 

the Insurance and Private Pensions Committee (IPPC) of the Organisation for Economic CoOperation and Development, together with the U.S. Departments of Commerce and Labor and 

the NAIC.296 The IPPC published a recommendation on disaster risk financing strategies and 

remains engaged on issues related to disasters and climate risk.297

By statute, FIO represents the United States at the IAIS and is a permanent member of its 

Executive Committee. The IAIS is the international standard-setting body responsible for 

developing and supporting the implementation of principles, standards, and other material for the 

supervision of the insurance industry. The Federal Reserve, the NAIC, and state insurance 

regulators are also IAIS members. The overarching framework for the IAIS’s voluntary 

292 Responses are available at “Federal Insurance Office Request for Information on the Insurance Sector and 

Climate-Related Financial Risks,” regulations.gov.

293 NGFS is a group of member authorities that, on a voluntary basis, share best practices, contribute to the 

development of environment and climate-related risk management practices in the financial sector, and help 

mobilize mainstream finance to support the transition toward a sustainable economy. “Membership,” NGFS, 

https://www.ngfs.net/en/about-us/membership.

Launched in December 2016, SIF is an international network of insurance regulators committed to working together 

on sustainability challenges facing the insurance industry. “Members,” SIF, 

https://www.sustainableinsuranceforum.org/members/.

294 SIF, Nature-Related Risks in the Global Insurance Sector (November 2, 2021), 

https://www.sustainableinsuranceforum.org/publication/sif-scoping-study-nature-related-risks-in-the-globalinsurance-sector/.

295 See, e.g., “EU-U.S. Insurance Project,” Treasury, https://home.treasury.gov/policy-issues/financial-marketsfinancial-institutions-and-fiscal-service/federal-insurance-office/eu-us-insurance-project.

296 The OECD provides a “forum and knowledge hub for data and analysis, exchange of experiences, best-practice 

sharing, and advice on public policies and international standard-setting.” “Who We Are,” OECD, 

https://www.oecd.org/about/.

297 See, e.g., OECD, Recommendation of the Council on Disaster Risk Financing Strategies (adopted February 2, 

2017), https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0436.
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standards for insurance supervision are the Insurance Core Principles (ICPs).298 The IAIS has 

concluded that the ICPs are “sufficiently broad to cover climate risks” but plans to make a 

“limited number of changes to ICP guidance to make it even more explicit that insurance 

supervisors should require insurers to incorporate climate-related risks into their day-to-day 

operations.”299 In line with its 2020–2024 Strategic Plan, the IAIS increased its focus on 

climate-related risks in 2021 by publishing, jointly with SIF, guidance on climate-related risks

and by creating a Climate Risk Steering Group to coordinate the IAIS’s work on climate-related 

risk.

300 In 2021, the IAIS also released a global, quantitative study on the impact of climate 

change on insurance industry investments.301 In 2023, the IAIS published for public comment 

draft climate risk supervisory guidance.302

Several international regulators have released supervisory expectations that may be useful 

reference points to state insurance regulators as they continue developing climate-related 

guidance for U.S. insurers (see Box 3).

Box 3: International Examples of Climate-Related Supervision

As state insurance regulators continue to develop climate-related supervisory guidance and 

expectations for insurers, they may find it useful to refer to examples from other jurisdictions.

France: In July 2015, France introduced the first mandatory climate-related disclosure 

requirements for institutional investors, including insurers in their role as asset owners.

303 The 

French prudential regulator has released multiple reports detailing the extent of compliance and 

highlighting actions taken in response to the law.304

298 “Insurance Core Principles and ComFrame,” IAIS, https://www.iaisweb.org/activities-topics/standardsetting/icps-and-comframe/. See also IAIS, Insurance Core Principles and Common Framework for the Supervision 

of International Active Insurance Groups, updated November 2019, 50, 

https://www.iaisweb.org/uploads/2022/01/191115-IAIS-ICPs-and-ComFrame-adopted-in-November-2019.pdf. Any 

standards developed in the IAIS are not binding on the United States or any other jurisdiction: they are effective 

only to the extent that the jurisdiction has separately implemented the standards in accordance with its domestic law.

299 “Climate Risk,” IAIS, https://www.iaisweb.org/activities-topics/climate-risk/.

300 IAIS, The IAIS Strategic Plan 2020-2024 (June 2019), https://iaisweb.org/uploads/2022/01/190613-2020-2024-

Strategic-Plan.pdf; IAIS & SIF, Climate Application Paper; IAIS, Year in Review 2021 (2022), 28, 

https://www.iaisweb.org/uploads/2022/05/IAIS-Year-in-Review-2021-1.pdf.

301 IAIS, Global Insurance Market Report: The Impact of Climate Change on the Financial Stability of the 

Insurance Sector (September 2021), 5, https://www.iaisweb.org/uploads/2022/01/210930-GIMAR-special-topicedition-climate-change.pdf.

302 IAIS, Public Consultation on Climate Risk Supervisory Guidance – Part One: Consultation Document (March 

16, 2023), https://www.iaisweb.org/2023/03/public-consultation-on-climate-risk-supervisory-guidance-part-one/.

303 See, e.g., UN Principles of Responsible Investment, French Energy Transition Law: Global Investor Briefing 

(2016), 7–8, https://www.unepfi.org/fileadmin/documents/PRI-FrenchEnergyTransitionLaw.pdf.

304 See, e.g., Autorité de Contrôle Prudentiel et de Résolution (ACPR), French Insurances Facing Climate Change 

Risk (April 2019), https://acpr.banquefrance.fr/sites/default/files/medias/documents/as_102_climate_change_insurers_en.pdf; ACPR, Climate Change 
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UK: In April 2019, the Bank of England issued a statement outlining its expectations that

insurers and banks consider climate-related risks in their governance arrangements, incorporate 

such risks in their risk management practices, use scenario analysis to inform strategy setting and 

risk assessment processes, and develop disclosure practices. Starting in 2022, it began to 

actively supervise firms in line with these expectations.305

EU: In April 2021, the EU financial regulatory institution supervising insurance and 

occupational pensions published supervisory expectations (and in August 2022 finalized 

guidance) on the integration of long-term, forward-looking scenario analysis into ORSAs to 

identify exposure to material climate-related risks.306

Canada: In May 2022, Canada’s financial institutions regulator released draft guidelines on 

climate-related risk management covering expectations around governance, risk management, 

and public disclosures, including climate scenario analysis, stress testing, and capital and 

liquidity adequacy.307

Singapore: Singapore’s financial regulator issued guidelines in December 2020, which set out 

environmental risk-related expectations for insurers and other supervised financial institutions 

with respect to governance and strategy, risk management, and disclosures.308 The guidelines for 

insurers also cover underwriting and investment. In May 2022, the Singapore regulator issued 

papers detailing emerging and good practices by insurers for environmental risk management as 

well as areas for further work.309

Risk Governance (February 2, 2022), https://acpr.banquefrance.fr/sites/default/files/medias/documents/20220222_climate_change_risk_governance_rapport_en.pdf.

305 See Bank of England (BOE), Enhancing Banks’ and Insurers’ Approaches to Managing the Financial Risks 

from Climate Change (April 15, 2019), https://www.bankofengland.co.uk/-/media/boe/files/prudentialregulation/supervisorystatement/2019/ss319.pdf?la=en&hash=7BA9824BAC5FB313F42C00889D4E3A6104881C44; “Climate Change,” 

BOE, last updated April 13, 2023, https://www.bankofengland.co.uk/climate-change.

306 EIOPA, Opinion on the Supervision of the Use of Climate Change Risk Scenarios in ORSA (April 19, 2021), 

https://www.eiopa.europa.eu/system/files/2021-04/opinion-on-climate-change-risk-scenarios-in-orsa.pdf; EIOPA, 

Application Guidance on Running Climate Change Materiality Assessment and Using Climate Change Scenarios in 

the ORSA (August 2, 2022), www.eiopa.europa.eu/system/files/2022-

08/application_guidance_on_running_climate_change_materiality_assessment_and_using_climate_change_scenario

s_in_the_orsa_0.pdf. See also EIOPA, Revised Single Programming Document 2022-2024 (January 31, 2023), 9, 

www.eiopa.europa.eu/system/files/2022-01/eiopa-bos-21-419-single-programming-document-spd-2022-2024.pdf.

307 Office of the Superintendent of Financial Institutions, Climate Risk Management (May 2022), https://www.osfibsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b15-dft.aspx.

308 Monetary Authority of Singapore, Guidelines on Environmental Risk Management for Insurers (December 8, 

2020), https://www.mas.gov.sg/regulation/guidelines/guidelines-on-environmental-risk-management-for-insurers.

309 Monetary Authority of Singapore, Information Paper on Environmental Risk Management (Insurers) (May 

2022), https://www.mas.gov.sg/-/media/MAS-Media-Library/publications/monographs-or-informationpaper/BD/2022/Information-Paper-on-Environmental-Risk-Management-Insurers.pdf.
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Bermuda: The Bermuda Monetary Authority (BMA) issued guidance on the management of 

climate-related risks for commercial insurers and insurance groups in March 2023.310 BMA 

expects commercial insurers to incorporate climate-related risks into their risk management 

framework and strategy.

310 Bermuda Monetary Authority, Management of Climate Change Risks for Commercial Insurers (March 2023), 

https://www.bma.bm/viewPDF/documents/2023-03-09-17-03-42-Guidance-Note---Insurance---Management-ofClimate-Change-Risks-for-Commercial-Insurers.pdf.
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IV. CONCLUSIONS AND NEXT STEPS

Climate change presents new and increased risks for both P&C and life insurers. Addressing 

these risks is necessary to enable insurers to continue serving their critical role in the economy as 

investors, risk managers, and as a key risk transfer resource that helps protect policyholders from 

loss and assists in enabling recovery from climate-related disasters. This Report shows that the 

NAIC and some state insurance regulators have begun to adapt their existing tools to respond to 

climate-related risks. FIO commends these initial efforts and encourages additional work in this 

area, particularly by states that are less advanced in their efforts to incorporate climate-related 

risks into their individual insurance regulatory frameworks.

As FIO conducts its climate-related work, it remains focused on its statutory roles of identifying

regulatory gaps that could contribute to a systemic crisis in the insurance industry, consulting

with state insurance regulators regarding insurance matters of national importance, advising on 

major international insurance policy issues, and to monitoring the extent to which traditionally 

underserved communities and consumers, minorities, and low- and moderate income persons 

have access to affordable insurance products. FIO will continue analyzing and addressing how 

the insurance industry may be impacted by, and can help to mitigate, climate-related risks.

FIO plans to advance progress on the recommendations in this Report, including by:

• Monitoring the climate-related work of state regulators and how their work addresses the 

issues and gaps identified in this Report.

• Issuing periodic updates detailing the progress made by state insurance regulators and the 

NAIC in these areas.

• Engaging with the NAIC, state insurance regulators, and other domestic and international 

stakeholders on these issues.