EIOPA issued three publications as part of its activities on sustainable finance. One of the publications is a feedback statement and a resolution table on the comments received on a pilot dashboard on insurance protection gap for natural catastrophes. The other publications are a methodological paper for integrating climate change under the Solvency II standard formula and a report on non-life underwriting and pricing in light of climate change. The EIOPA work addresses key issues of climate change-related risk for the insurance sector and continues to encourage insurers to play the role of enabling climate change mitigation and adaption. These recently published deliverables support the new sustainable finance strategy of EC in striving for greater protection against climate and environmental risks through insurance coverage and in integrating sustainability risks in the prudential framework for insurers.
The salient points of the published documents are described below:
- Feedback statement and resolution table on pilot dashboard for the natural catastrophe protection gap. EIOPA collected views from stakeholders on the pilot dashboard on insurance protection gap for natural catastrophes, which ran from December 04, 2020 until March 31, 2021. This first pilot dashboard depicts the insurance protection gap for natural catastrophes in Europe. The pilot dashboard brings together data on economic and insured losses, vulnerabilities and exposure, as well as insurance coverage across the EU member states. The dashboard will help in identifying regions at risk, the drivers of a climate-related insurance protection gap, as well as defining proactive prevention measures. It should allow for evidence-based decision-making on measures to improve society’s resilience against natural catastrophes at a time when losses to properties and businesses are expected to grow due to climate change. EIOPA aims to publish a revised version in 2022.
- Methodological paper for integrating climate change in underwriting risk capital charge of the Solvency II standard formula. The paper discusses the methodological steps which support the need to formalize an approach to re-assess and, where needed, recalibrate parameters for the natural catastrophe risk module of the Solvency II standard formula on a regular basis. The regular re-assessment or recalibration would integrate new considerations such as use of models, which explicitly consider climate change, as well as the possibility to include new countries. The paper also identifies the need to enhance the understanding on emerging perils such as wildfire or droughts. The methodology takes into account that the frequency and severity of natural catastrophes is expected to increase due to climate change. The solvency capital requirements for natural catastrophe underwriting risk therefore need to reflect the expected impact of climate change to ensure the financial resilience of (re)insurers covering natural catastrophes.
- Report on non-life underwriting and pricing in light of climate change. The report investigates the opportunity for (re)insurers, as risk managers and underwriters, to contribute to climate adaptation and mitigation, by supporting the insurability of climate change-related risks. By applying their data, expertise and risk assessment capacity they can incentivize policyholders to mitigate insured risks. Through risk-based pricing, contractual terms, and underwriting strategy (re)insurers should consider implementing measures for climate change adaptation and/or mitigation. EIOPA aims to incentivize (re)insurers’ efforts in taking a forward-looking approach to covering risks arising from climate change.
As the next step, EIOPA will focus on exploring a risk-based prudential treatment of insurance products related to climate change adaptation. EIOPA will also investigate the integration of climate change adaptation and mitigation requirements in insurance distribution and product oversight and governance requirements. Finally, EIOPA will consider investigating the potential for long-term non-life contracts, considering the need to develop innovative solutions.
- Press Release
- Feedback Statement on Dashboard (PDF)
- Resolution Table on Dashboard (PDF)
- Overview of Pilot Dashboard and Related Documents
- Paper on Integrating Climate Change into Solvency II Formula
- Report on Non-Life Underwriting and Pricing for Climate Risk
Keywords: Europe, EU, Insurance, Solvency II, Climate Change Risk, ESG, Sustainable Finance, Solvency Capital Requirement, Catastrophe Risk, Non-Life Underwriting, EIOPA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.