Climate change is expected to pose a serious risk for (re)insurers and 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. Regulators worldwide have made significant progress in providing guidance to (re)insurers on how to take account of climate change risk.
EIOPA expects (re)insurers to integrate climate change risk in their governance, risk management framework and ORSA and to perform climate change scenario analysis over the short and long term. (Re)insurers are expected to perform materiality assessments on a broad range of climate risks and analyse scenarios relevant to their portfolio. EIOPA will begin to monitor the application of their ORSA Opinion from April 2023.
The BMA similarly expects (re)insurers to address climate change risk in their governance, risk management framework and GSSA/CISSA. BMA will begin to monitor progress on the guidance during 2023, and the framework should be fully adopted by year-end 2025. BMA expects an implementation status update and at least a climate risk exposure analysis in the year-end 2022 ORSA, with continuous advancements in scenario analysis up to 2025.
Governance:
Integration of climate change risks in the ORSA, governance and risk management systems.
Risk identification:
Identification of a range of climate change risk exposures and materiality assessment of your portfolio.
Mapping of risks:
Mapping the identified climate change risks to traditional prudential risk categories for (re)insurers.
Scenario definition:
Defining relevant climate scenarios for ORSA, leveraging online resources referenced by EIOPA (e.g. NGFS and IPCC).
Modelling of risks:
Modelling the risks for your scenarios, translating the climate projections into financial and underwriting impacts.
ORSA approach:
Defining modelling approach for ORSA scenarios, e.g. balance sheet stress tests versus projections over short or long term.
Frans is an actuary and Financial Risk Manager with international experience in the pensions and insurance sectors. He has been specialising in climate change risk management, actuarial valuations (AXIS), financial reporting (IFRS17, IAS19), regulatory reporting (BMA EBS, Solvency II, ICS, IORP II), market risk management (ALM, SAA) and investment consulting.
Evelyn is an actuary and Managing Consultant in Finalyse Dublin. She has 15 years’ experience between consulting and life industry. Evelyn has expertise in regulatory and financial reporting (Solvency II, BMA EBS, IFRS, US GAAP), actuarial and capital modelling, external audit, and risk management. She is currently focusing on climate change risk management and CSRD requirements.
Integration of Climate Change Risk in the ORSA and Risk Management Framework
Finalyse supported the client with integrating climate change risk in their ORSA and risk management framework. This included performing a materiality assessment and setting a baseline scenario narrative, with the following key deliverables:
Following our successful project with the cleint in 2023 to integrate climate change risk into the risk management framework, Finalyse is currently supporting them on a further project to expand on and enhance the approach.
Finalyse was engaged by Belfius Insurance, a Belgian insurer selling both life and non-life contracts nationally, to perform a review of their approach to climate change risk assessment. The assessment included the following steps:
Finalyse supported the cleint in Belgium with their ESG disclosures for the Key Information Documents of some of their insurance products.
Finalyse assessed the information that was provided by the client in their Key Information Documents for their unit-linked life insurance products in light of the SFDR (Sustainable Financial Disclosures Regulation). This involved labelling the assets underlying these products into “light-green” funds, “dark green” funds and those that do not fall into either of these categories.
Finalyse supported the client with the regulatory requirements in terms of incorporating climate change risk. The project involved the following: