25 May 2021

IAIS: Press Release: IAIS and SIF set out key recommendations for insurance supervisors to strengthen efforts to address climate-related ris

The Application Paper on the Supervision of Climate-related Risks in the Insurance Sector provides recommendations and examples of good practice for insurance supervisors to manage the challenges arising from climate change.

The IAIS, in partnership with the United Nations-convened Sustainable Insurance Forum (SIF), published the Application Paper on the Supervision of Climate-related Risks in the Insurance Sector. The Paper provides insurance supervisors with concrete tools to further strengthen their efforts in assessing and addressing risks from climate change. It also sets out recommendations and examples of good practice consistent with the IAIS Insurance Core Principles (ICPs).

 Climate change has the potential to affect individual insurers as well as global
financial stability. Therefore, supervisors should have the tools to monitor,
assess and contribute to the mitigation of the risks from climate change to the
insurance sector.

 A public webinar will be held on 9 June to provide more background on the
publication and allow for a question and answer session.

The International Association of Insurance Supervisors (IAIS) in
partnership with the United Nations-convened Sustainable Insurance Forum (SIF) published
today an Application Paper on the Supervision of Climate-related Risks in the Insurance
Sector. The Paper, the first of its kind by a global standard-setting body, provides insurance
supervisors with concrete tools to further strengthen their efforts in assessing and addressing
risks to the insurance sector from climate change. It also sets out recommendations and
examples of good practice, consistent with the Insurance Core Principles (ICPs). With this
publication, the IAIS and SIF aim to promote a globally consistent approach to the supervision
of climate-related risks.

“Climate change poses a material and present risk to the insurance sector”, said Vicky
Saporta, IAIS Executive Committee Chair. “The IAIS recognises that failure to adequately
manage the impact from climate change across the financial sector could put both global
financial stability and policyholders at risk. This joint IAIS/SIF Application Paper will support
supervisors in their efforts to address climate change and other sustainability challenges.” Anna Sweeney, Chair of the SIF, commented: “The IAIS and SIF developed an innovative
partnership to increase supervisory attention on the risks posed by climate change. This
Application Paper provides an invaluable resource for supervisors and will support the SIF’s
ongoing efforts to build supervisory capacity in this area.”

Highlights of the recommendations include:

 Role of the supervisor: Supervisors should assess the relevance of climate-related
risks to their supervisory objectives. They should collect quantitative and qualitative
information on the insurance sector’s exposure to, and management of, physical,
transition and liability risks of climate change.
 Corporate governance: When addressing climate-related risks, it is expected that
insurers integrate these risks into their overall corporate governance framework. For
instance, the control functions (including the risk management and actuarial functions)
should properly consider climate-related risks and have appropriate resources and
expertise to manage them.
 Risk management: Climate-related risks have the potential to impact all insurers;
therefore, these risks should be considered for inclusion in the Own Risk and Solvency
Assessment (ORSA). Likewise, it is expected that insurers adopt the appropriate risk
management actions to mitigate any identified risks.
 Investment policy: Insurers should assess the impact from physical and transition
risks on their investment portfolio, as well as on their asset-liability management. A
forward-looking view, including the use of scenarios, may help insurers gain a better
understanding of the risks.
 Disclosures: Material risks associated with climate change should be disclosed by
insurers, in line with ICP 20 (Public Disclosure). Supervisors may use the Financial
Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD)
framework when designing best practices or as input for setting their own supervisory
objectives. Insurers should incorporate in their disclosure the extent to which their risk
profile exposes them to the impacts of climate-related risks, as well as any metrics or
targets developed by the insurer.
The IAIS and SIF recognised early the importance of tackling climate risk and sustainability
and have been developing a robust toolkit over the past few years. In the coming months, the
IAIS will publish a Global Insurance Market Report (GIMAR) featuring, as a special topic, an
analysis of the investment exposures of insurers to climate change. Addressing climate risk
will remain a strategic priority for both the IAIS and SIF in the coming years as they continue
their joint efforts on promoting coordinated supervisory responses....

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