Climate Scenario Analysis - Understanding the financial impact of climate risk


Insurers are facing new climate risk regulations which dictate that scenarios play a central role to help understand the financial impact of physical and transition risk. There is an acknowledgement that scenario capabilities will need to evolve and become more sophisticated over the next few years to meet the expectations of their regulators and to add maximum value to the business. In effect, insurers have a grace period from regulators to make sure that their scenario analysis is up to scratch before they switch from supporting insurers efforts to active supervision. 

Scenario Analysis is challenging. Insurers need an approach to scenarios which addresses the complexity and uniqueness of their business model since climate risk touches both sides of their balance sheet, as well as their business operations. 

Moody’s Analytics has extensive expertise in scenarios and deep domain knowledge of the insurance market and climate risk, offering a range of solutions to help insurers better understand the financial impact of climate risk.


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.



  • Climate pathways can be specific to the Network for Greening the Financial System criteria, Moody’s Analytics economic climate assumptions or the insurers' own input
  • Scenarios help insurers model low carbon/ESG tilts to support SAA and modeling of sustainable investment mandates
  • Provides option to align with insurers own capital market assumptions
  • Access to Moody’s Analytics climate and calibration experts to help you communicate and own the climate scenario selected
  • Helps insurers understand socio-economic uncertainty so they can make informed choice of scenarios to use for ORSA/TCFD/Stress test

Regulatory Developments

AU flag

“Scenario analysis and stress testing for climate risks is a developing area, and APRA expects approaches to evolve and mature over time; however, the expectation of future improvements in approach is not a justification for delaying its use.”

Source: Australian Prudential Regulation Authority (APRA), Nov 2021

EU flag

“Recognising that methodologies are still developing and insurers need to gain experience, insurers are expected to evolve the sophistication of the scenario analyses, taking into account the size, nature and complexity of their climate change risk exposures”.

Source: European Insurance and Occupational Pensions Authority
(EIOPA), April 2021

US flag

“DFS expects an insurer’s approach to scenario analysis to evolve and mature over time….. insurers are encouraged to identify data, methodology, and talent gaps, and to raise their organizations awareness and sophistication with respect to managing climate risk.”

Source: New York State Department of Financial Services (DFS), Nov 2021

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