May 22, 2019

PRA published a report that presents the six-stage framework for assessing the financial impact of physical climate change. This framework is intended for practitioners in the general insurance sector and has been written by a cross-industry working group. Insurers can follow the framework, using existing tools and associated metrics to better assess, manage, and report exposure to physical climate risks, including extreme weather events, which in turn will lead to action. The working group is requesting comments on the framework by November 22, 2019.

The report demonstrates how expert judgement, hazard maps, footprints, and catastrophe models can be tailored to address the needs of practitioners, depending on the data available, the business need in question, and the required output metrics. The report also contains several case studies that illustrate how different stages of the framework could be used. The six stages of the framework are as follows:

  • Identify business decision(s). A physical climate change study would typically aim to inform a business decision or activity. This stage of the framework will decide the time horizon and metrics that need to be considered.
  • Define materiality. This stage enables the firm to focus on the business areas where the physical risk from climate change could have a material impact on business decisions.
  • Conduct background research. The firm will need to review existing scientific publications to understand better how climate change could influence the relevant areas identified. The likely outcome is a range of projected changes in frequencies or intensities for specific perils.
  • Assess available tools. A decision will need to be made on which catastrophe tool(s) will provide the most suitable analysis.
  • Calculate impact. This stage involves using the tools selected to assess the financial impact from the projected changes to the perils in question. Key considerations could include the appropriate communication of both the output and the uncertainty in the results.
  • Reporting and action. Output from the use of the framework needs to be communicated to decision makers in a manner that can inform the business decision(s) in question, highlighting the limitations and uncertainty related to the analysis.

The framework outlined in the report is intended as a possible starting point for firms to assess the impact in the context of their business decisions and disclosure requirements. Although the results from such an analysis will have inherent uncertainty, the insurance industry is uniquely placed to manage this due to its existing expertise in dealing with uncertainty when assessing climatic extremes. While this report acknowledges that tools assessing physical climate change risk are evolving rapidly, it puts emphasis on outlining the tools and methodologies that are available to the general insurance sector to assess the potential impact of climate change on their insurance liabilities. The report discusses the advantages and disadvantages of each tool. The report also sets out recommendations for how the catastrophe analytics industry can contribute further, suggesting that it can play an important role in interpreting existing scientific studies; combined with existing tools, it can assess the financial impact from physical climate change while making recommendations for improving both future research and catastrophe tools development.

 

Related Links

Comment Due Date: November 22, 2019

Keywords: Europe, UK, Insurance, Physical Climate Change, Climate Change Risks, Climate-Related Disclosures, Assessment Framework, PRA

Related Articles
News

EBA Consults on Guidelines for Loan Origination and Monitoring in EU

EBA launched a consultation on the guidelines on loan origination and monitoring in EU.

June 19, 2019 WebPage Regulatory News
News

OCC Bulletin on Risk Management Guidance for Home Mortgage Lending

OCC published Bulletin 2019-28 on risk management guidance for higher-loan-to-value (LTV) lending activities in communities targeted for revitalization.

June 19, 2019 WebPage Regulatory News
News

IFRS to Discuss Phase II of IBOR Reform at July Meeting of ASAF

IFRS published agenda papers for the Accounting Standards Advisory Forum (ASAF) meeting to be held on July 11–12, 2019.

June 19, 2019 WebPage Regulatory News
News

EC Amends Regulation Supplementing Solvency II Directive

EC published the Delegated Regulation (EU) 2019/981 that amends the Regulation (EU) 2015/35, which supplements Solvency II Directive (2009/138/EC) on the taking-up and pursuit of the business of insurance and reinsurance.

June 18, 2019 WebPage Regulatory News
News

IOSCO Report Examines Application of International Cyber Standards

IOSCO published a final report that examines the application of the three internationally recognized cyber standards and frameworks by IOSCO member jurisdictions.

June 18, 2019 WebPage Regulatory News
News

PRA Launches 2019 Stress Test Exercise for Life and General Insurers

PRA has launched the biennial insurance stress test and is asking the largest regulated life and general insurers to provide information about the impact of a range of stress tests on their business.

June 18, 2019 WebPage Regulatory News

SRB Outlines Upcoming Changes in Context of CRR2 and BRRD2

SRB published presentations made at the 8th Industry Dialogue in Brussels.

June 18, 2019 WebPage Regulatory News
News

EC Publishes Guidelines on Climate-Related Information Reporting

EC published the guidelines and associated frequently asked questions (FAQs) on corporate climate-related information reporting, as part of its sustainable finance action plan.

June 18, 2019 WebPage Regulatory News
News

PRA Finalizes Reporting Amendments to Pillar 2 Liquidity Framework

PRA published the final Policy Statement PS13/19 on regulatory reporting amendments and clarifications to the Pillar 2 liquidity framework for banks in UK.

June 17, 2019 WebPage Regulatory News
News

FSB Assesses Implementation of Compensation Standards and Principles

FSB published the sixth progress report on the implementation of its principles and standards for sound compensation practices in financial institutions.

June 17, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3276