EIOPA Consults on Integrating Climate Change into SII Standard Formula
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk. To ensure the financial resilience of insurers and reinsurers covering natural catastrophes, the solvency capital requirement (SCR) for natural catastrophe underwriting risk needs to remain appropriate in light of climate change. To this end, EIOPA is proposing possible methodological steps and process changes to integrate climate change in the calculation of natural catastrophe risk SCR calibration. Comments on the discussion paper are due by February 26, 2021, post which EIOPA expects to consider the feedback received and to publish the final report in the Summer of 2021.
This discussion paper is a follow-up to the opinion on sustainability within Solvency II, which EIOPA published in September 2019; the opinion concluded that there is a need to consider if, and how, climate change-related perils could be better captured in the Solvency II framework under the natural catastrophe risk submodule. In this discussion paper, EIOPA proposes the following possible methodological steps to include climate change in the natural catastrophe SCR Calibration:
- Use natural catastrophe models that explicitly consider climate change to recalibrate the natural catastrophe standard formula parameters
- Assess whether new countries should be added to the countries currently covered by the standard formula
- Assess the need to include new perils to the perils currently covered by the standard formula
- Asses the need to include other insurance activities to the ones currently covered by the standard formula
- Add a loading factor for specific perils or regions
- Capture climate change in the spatial and peril correlation
As part of the process changes to include climate change in the natural catastrophe SCR calibration, EIOPA proposes to formalize an approach to re-assess current natural catastrophe SCR parameters on a regular basis and to perform regular calibrations. The reassessment would need to consider parameters such as new legislation, evidence-based requests from stakeholders for the recalibration of a certain peril or region, changes in national insurance schemes (new pools for example), and inadequate loss ratio (which might not directly link to climate change but still have important consequences). Every 3 to 5 years experts from national competent authorities, natural catastrophe insurance, natural catastrophe modelers, and climatologists would reassess the parameters for all perils or regions in the standard formula and stress the potential need for a recalibration of certain perils or regions. For this, the following criteria could be considered:
- Model changes due to climate change or other reasons
- New scientific evidence on climate change
- Changes in exposure and/or vulnerability
- Materiality of the change
- New insurance products
Related Links
Comment Due Date: February 26, 2021
Keywords: Europe, EU, Insurance, Solvency II, Climate Change Risk, ESG, Sustainable Finance, SCR, Solvency Capital Requirement, Catastrophe Risk, EIOPA
Featured Experts

Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist

Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers

Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Related Articles
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.