Lecture 6 Climate Risks Flashcards
What is the mission of the International Association of Insurance Supervisors?
The mission of the IAIS is to:
* Promote effective and globally consistent supervision of the insurance industry in
order to develop and maintain fair, safe and stable insurance markets for the benefit
and protection of policyholders;
* Contribute to global financial stability.
Where does the IAIS work focuses on?
- Undertaking analysis to understand how climate change impacts the
insurance sector and financial stability - Promoting a globally consistent supervisory response to climate change,
by developing guidance on supervisory practices, reviewing existing IAIS
standards to assess whether further work is needed, as well as by supporting
cross-sectoral initiatives - Assisting in capacity building initiatives, in cooperation with our partners
Which two climate risks do you have?
Physical risk: Melting Ice caps increasing sea levels, causing floods in large metropolitan areas
Transition risk: Succesful government policies such as carbon tax in reducing greenhouse gas emissions
Which 5 risks are impacted by physical and transition risk?
Insurance risk
Market risk
Credit risk
Operational risk
Liquidity risk
What are the Battiston et al. (2017) defined six “Climate Policy
Relevant Sectors”:
- Agriculture
- Energy-intensive
- Fossil fuel
- Housing
- Transport
- Utilities
As the frequency and intensity of natural catastrophe (NatCat) events are expected
to grow due to climate change, this may challenge………
the insurability and affordability
of insurance coverage – leading to increasing protection gaps
three components of Climate change resilience
Risk transfer
- Reduce vulnerability and support
community resilience
Investment
- Responsible and sustainable
investment; green investment
options
Risk intelligence
- Power in knowledge and
understanding of risks; build
capacity more broadly
What are the three pillars of the supervisory framework?
Pillar 1: Quantitative: Solvency requirements
Pillar 2: Qualitative: Risk management / governance / supervisory review
Pillar 3: Market discipline:
Public disclosures
Which four components does the corporate governance framework have?
Strategy and business planning
Training and building expertise
Metrics and monitoring
Board and senior management
What are four ways to incorporate climate-related risks in the investment policy?
- Divestments / Exclusions
- Limits (“brown” investments) and targets (“green investments”)
- Engagement strategies
- Measuring investment portfolio carbon footprint
What are the four main scenario’s with escalating severity?
- An orderly (early, ambitious) transition,
consistent with a temperature increase of 2°C
by 2100. This is the mildest scenario. » - A disorderly (late, disruptive action) transition,
consistent with the same temperature
increase but amplifying transition risk. - A “hot house world” scenario consistent with a
temperature increase of close to 3°C by 2100
and little or no transition policy, which focuses
on physical risk. - A “too little, too late” scenario which can be
considered a worst-case scenario that exhibits
both transition and physical risk.
Climate risk is relevant and significant for……
the financial industry, including insurers,
and as such also for risk managers
The body of work will continue to grow, …
including available data and analytical tools
Discussion around ….
possible implications on Pillar 1 / capital requirements
Discussion on role ….
of financial institutions in promoting the net zero transition will likely continue
