Featured Product

    EIOPA Consults on Integrating Climate Change into SII Standard Formula

    December 02, 2020

    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
    Related Articles
    News

    BIS and Central Banks Experiment with GenAI to Assess Climate Risks

    A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe

    March 20, 2024 WebPage Regulatory News
    News

    Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures

    Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.

    March 18, 2024 WebPage Regulatory News
    News

    Singapore to Mandate Climate Disclosures from FY2025

    Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies

    March 18, 2024 WebPage Regulatory News
    News

    SEC Finalizes Climate-Related Disclosures Rule

    The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.

    March 07, 2024 WebPage Regulatory News
    News

    EBA Proposes Standards Related to Standardized Credit Risk Approach

    The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU

    March 05, 2024 WebPage Regulatory News
    News

    US Regulators Release Stress Test Scenarios for Banks

    The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).

    February 28, 2024 WebPage Regulatory News
    News

    Asian Governments Aim for Interoperability in AI Governance Frameworks

    The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.

    February 28, 2024 WebPage Regulatory News
    News

    EBA Proposes Operational Risk Standards Under Final Basel III Package

    The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.

    February 26, 2024 WebPage Regulatory News
    News

    EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS

    The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.

    February 23, 2024 WebPage Regulatory News
    News

    ECB to Expand Climate Change Work in 2024-2025

    Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.

    February 23, 2024 WebPage Regulatory News
    RESULTS 1 - 10 OF 8957