A fresh take on risk and valuation
Climate change is expected to pose a serious risk for (re)insurers as well as for society in the future. Without intervention, global average temperatures are expected to keep rising, along with the associated physical risks. This could increase (re)insurers' underwriting risk, challenge business strategies and negatively impact asset values.
EIOPA expects (re)insurers to integrate climate change risk in their governance, risk-management system and ORSA. This includes assessing climate change risks in the short term and in the long term using scenario analysis. (Re)insurers also need to incorporate climate change into their stress tests to assess their vulnerability to climate risks.
Finalyse assists in the development and implementation of a climate change risk management framework.
ORSA:
Integration of climate change risks in the ORSA, governance and risk management systems.
Risk identification:
Identification of material climate change risks exposures.
Modelling of risks:
Defining modelling approaches for climate change risks.
Scenario design:
Designing a range of relevant scenarios to be used in scenario analysis.
Mapping of risks:
Mapping climate change risks into traditional prudential risk categories.
Stress testing:
Incorporating climate change into stress tests to assess vulnerability to climate risks.
Yannis is a qualified actuary with experience in risk management, actuarial modelling and capital management for insurers. He has acquired in-depth knowledge of the insurance sector through the performance of key roles such as CRO and Head of Actuarial Function. He is a subject matter expert in the fields of Solvency II, Risk Appetite Frameworks, Balance Sheet Valuation and ORSA projection models.
Frans is an actuary and Financial Risk Manager with international experience in the pensions and insurance sectors. He has been specialising in actuarial valuations, financial reporting, risk management, asset-liability modelling (ALM) and investment consulting.
Francis is an actuary within the life and non-life (re)insurance industry. His expertise covers the areas of financial reporting and prudential regulation. He worked in the life insurance industry in a financial reporting and capital modelling capacity with extensive exposure to domestic and international clients with a keen eye on new regulatory developments.
Climate change poses a serious risk for society and for (re)insurers, with the harmful impact of global warming already being visible. Without further international climate action, global average temperatures and the associated physical risks will continue rising, resulting in increased underwriting risk of insurers, impacting asset values, and challenging their business strategies. On the 5th October 2020, the EIOPA has published a consultation paper on the use of climate change risk scenarios in the ORSA in the form of a draft supervisory Opinion. The consultation is a follow-up to the Opinion on Sustainability within Solvency II released in September 2019 which recommended that (re)insurers should consider climate risks beyond the one-year time horizon within their system of governance, risk-management system and ORSA.
ReadThis article introduces the reader to the taxonomy regulation. The taxonomy regulation is intended to identify the investments, that are contributing towards the EU climate goals as expressed in the European Green deal. Against the backdrop of COVID 19, it is very likely that the taxonomy will serve as an important funnel for the stimulus/recovery money. However, given the strictness of the EU plans it is likely that the investments that qualify under taxonomy will be supported even further in the future, whereas the investments that do not may experience some adverse treatment. The taxonomy, therefore, is an important glimpse to the future. Read this paper in order to find out more about the basic principles underpinning the Taxonomy.
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