Climate scenario analysis for the insurance sector

Although regulation is still evolving, and is somewhat unclear in certain areas, many groups such as the Task Force on Climate-Related Financial Disclosures, and International Sustainability Standards Board are calling for detailed scenario analysis in relation to climate disclosures. There is mounting pressure on insurers to embed climate-aware scenario analysis into their Own Risk and Solvency Assessment and/or Strategic Asset Allocation processes.

The industry is still in the early stages of its climate scenario development and it has become a priority for many insurers to start to understand and develop best practices. But where do you start?

Podcast Series - Hear from our Experts

Our podcast series is dedicated to understanding the generation, application and interpretation of climate scenarios.

  • - How do climate scenarios differ from the scenarios that institutions normally use?

    - What are the advantages of quantitative scenarios over narrative?

    - What are the disadvantages/limitations that people should keep front of mind?

     

  • - Sources of climate narrative

    - Physical vs. transition risk

    - Network for Greening the Financial System (NGFS) Scenarios

    - What are the key features that insurers are observing when applying the scenarios?

    - How do we see climate scenarios evolving?

     

  • - An introduction to NGFS scenarios

    - How have the NGFS scenarios developed? What's new?

    - What are the disadvantages/limitations that people should keep front of mind?

    - What are the advantages are of quantifying the economic/financial impacts?

     

  • To make informed decisions, build resilience and address regulations, life insurers need modeling and scenario analysis to understand the impacts of climate change on their business. This article summarizes the key points from the podcast series in a written format.

     

Sponsored Podcast Series: Moody's Analytics and The Actuary
Exploring climate change modeling for insurers

 In a series of three podcasts, we are joined by experts from Moody’s and other industry specialists to explore the impact of climate change on risk modeling. We address the expectations and challenges of performing adequate analysis on both assets and liabilities, and the practical applications. Finally, we generate some thought-provoking discussion on whether insurers are missing some important risk factors in their analysis.

Episodes

  • In this episode we are joined by three Moody’s experts to explore how insurers are quantifying and assessing climate-related risks. We discuss how capturing both transition and physical risk is creating a new challenge for the industry.

  • We are joined by climate experts, Nick Jessop and Riccardo Rebonato for a thought-provoking discussion. Nick and Riccardo explore the ways that standard climate scenarios, such as those produced by the Network for Greening the Financial System (NGFS), can be used to create short-term stresses for financial markets and broaden the scope of climate analysis.

    You can also read our accompanying paper: Translating long-term climate scenarios to short-term market stresses


  • Experts from Moody’s Analytics and Isio discuss their experience of the practical applications of climate scenarios, and the opportunities and challenges insurers face in climate-conditioning their processes.

Podcast Speakers

Laura Tadrowski - Director, Advisory Services

Alasdair Thompson - Director, Research

Gavin Conn

Gavin Conn - Director, Research
Nick Jessop

Nick Jessop - Sr. Director, Research

Climate Pathway Scenario Service

Moody’s Analytics Climate Pathway Scenario Service offers a guided, step-by-step approach to help insurers develop their scenario capabilities. It provides the essential building blocks to operationalize scenarios in decision making and to meet regulation and disclosure requirements.

Built on our award-winning scenario generation software, the Climate Pathway Service translates climate pathways into an insurer’s financial risk variables to help them assess their climate-related risks and anticipate the future impact of climate change on asset and liability projections.

 

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Learn More About Climate Risk for Insurers

Speak to our team of experts to learn more and discuss how Moody's Analytics can help with your


  • Climate Scenario Analysis
  • Underwriting Strategy 
  • Investment Strategy
  • Risk Strategy
  • Regulatory Reporting and Disclosures