Featured Product

    PRA Consults on Framework to Assess Financial Impact of Climate Change

    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

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News

    ISSB Standards May Become Effective from January 2024

    The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.

    February 17, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8792