In this Opinion EIOPA sets out expectations on the supervision of the integration of climate change risk scenarios by insurers in their ORSA.
The European Insurance and Occupational Pensions Authority (EIOPA)
issued today an Opinion on the supervision of the use of climate change
scenarios in the Own Risk and Solvency Assessment (ORSA) addressed to
national supervisory authorities.
The (re)insurance industry will be impacted by climate change-related
physical and transition risks. However, only a minority of insurers
assess climate change risks in the ORSA using scenario analysis, usually
limited to a short-term time horizon. Therefore, EIOPA considers it
essential to foster a forward-looking management of these risks to
ensure the long-term solvency and viability of the industry.
National supervisory authorities should expect insurers to integrate
climate change risks in their system of governance, risk-management
system and ORSA, similar to all risks undertakings are or could be
exposed to. In the ORSA, insurers should do an assessment to identify
material climate change risk exposures and subject the material
exposures to a risk assessment.
Climate change risks should be assessed not only in the short term
but also in the long term using scenario analysis to inform the
strategic planning and business strategy. Insurers should subject
material climate change risks to at least two long-term climate
scenarios, where appropriate:
- a climate change risk scenario where the global temperature increase
remains below 2°C, preferably no more than 1.5°C, in line with the EU
commitments; and
- a climate change risk scenario where the global temperature increase exceeds 2°C.
The Opinion follows a risk-based and proportionate approach,
recognising that methodologies are still developing and insurers need to
gain experience. Insurers are expected to evolve the sophistication of
the scenario analyses, taking into account the size, nature and
complexity of their climate change risk exposures. The Opinion provides
practical guidance on how to select and use climate change scenarios.
EIOPA expects national supervisors to collect qualitative and
quantitative data to perform a supervisory review of the analysis of
short and long-term climate change risks in the ORSA. Instruments for
data collection should be the regular supervisory reporting, most
notably the ORSA supervisory report. EIOPA will start monitoring the
application of this Opinion by the national supervisory authorities two
years after its publication.
Download the opinion
EIOPA
© EIOPA
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article