IAIS Reports Shows 35% Of Insurer Investment Are ‘Climate-Relevant’
The International Association of Insurance Supervisors (IAIS) has published its first report on how insurance sector investments are exposed to climate change, as part of its 2021 Global Insurance Market Report (GIMAR).
“Climate change is the defining challenge for this generation. The GIMAR uses data from our wide membership in combination with analytical tools to understand how the insurance sector is exposed to climate risk,” said Vicky Saporta, IAIS executive committee chair. “The results highlight the benefits of pursuing an orderly transition towards internationally agreed climate targets to minimise the risks to solvency and financial stability.”
Climate change poses material risk to the economy and the financial sector, including the insurance sector. Changes in climate are already leading to more extreme and frequent weather-related events, increasing the physical risks to which insurers are exposed. Insurers will also need to manage their investment exposures to those assets and sectors most vulnerable. Data gathered from 32 IAIS members covering 75% of the global insurance sector represents the first global deep-dive analysis on insurers’ investment exposures and supervisors’ views on climate-related risks. Using the data, scenarios were developed to assess future climate change impacts.
Quantitative data analysis shows that “climate-relevant” assets within equities, corporate bonds, loans and mortgages, sovereign bonds and real estate represent more than 35% of insurers’ total assets. Within equities, corporate bonds and loans and mortgages, most climate-relevant assets relate to the housing and energy-intensive sectors.
“This report underscores the importance for supervisors of assessing how climate change may affect the insurance sector and individual insurers, and of developing an appropriate supervisory response,” said Jonathan Dixon, IAIS secretary general (pictured above). “The IAIS is committed to deepening the breadth and scope of our contributions to helping insurance supervisors mitigate the effects of climate change.”
This International Association of Insurance Supervisors (IAIS) Global Insurance Market Report (GIMAR) special topic edition provides the first quantitative global study on the impact of climate change on the insurance sector. The report focuses exclusively on insurers’ assets, although insurers are exposed to the consequences of climate change on both sides of their balance sheets as they underwrite risks that could be affected by climate change as well as invest in assets that could be affected by climate change.
Drawing on unique quantitative and qualitative data gathered from 32 IAIS Members covering 75% of the global insurance market, analysis was carried out to better understand insurers’ asset- side exposures to, as well as supervisors’ views on, climate-related risks. In addition, scenarios were developed to assess climate change impact on a forward-looking basis. The data was gathered through the arrangements put in place as part of the IAIS Holistic Framework for the Assessment and Mitigation of Systemic Risk in the Insurance Sector, in particular the Global Monitoring Exercise.
The analysis of climate-related risks poses conceptual and methodological challenges, including a lack of understanding about the uncertain process of climate change and its non- linear effects, the forces in uencing it and how these relate to nancial sectors, and the lack of a globally consistent framework for measuring climate risk-related nancial information. The report engages with these debates, highlighting the challenges encountered, the paths followed to address them and the resulting limitations emerging from the choices made.
Our quantitative data analysis on insurers’ asset- side exposures to climate risks shows that more than 35% of insurers’ investment assets (including equities and corporate debt, loans and mortgages, sovereign bonds and real estate) could be considered “climate-relevant”, ie exposed to climate risks. Within the equities, corporate debt, and loans and mortgages asset classes, the majority of climate-relevant exposures relate to counterparties in the housing and energy-intensive sectors. However, the report also highlights signi cant regional differences in terms of balance sheet asset composition and exposures to climate-relevant sectors.
To be Continued
Source Africa Ahead
