Summary
Key takeaways
A critical challenge: climate change represents a major challenge for insurers, driven by the increasing frequency of natural disasters and the need to manage risks associated with the transition to a low-carbon economy
Regulatory initiatives:
Solvency 2 revision: climate risks are gradually being integrated into the Solvency 2 prudential framework for insurers
Climate stress tests: These are proving useful in assessing insurers’ resilience to both physical and transition risks.
Implications for European insurers:
the latest EIOPA recommendations are expected to have limited impact on the solvency of European insurers
however, stress tests reveal significant vulnerabilities, including investment portfolio devaluation, rising climate-related claims, and declining solvency ratios.
Strategic levers for insurers: engaging with companies and reallocating asset portfolios using innovative indicators and tools.
Introduction
Climate change has become a key issue for the financial sector, particularly for insurers. The increasing frequency and intensity of natural disasters, combined with the challenges of transitioning to a low-carbon economy, are reshaping the risks insurers face.
In response, regulators are progressively strengthening the integration of climate risks into the prudential framework, particularly through the revision of the Solvency 2 directive, which governs insurance activities across the European Union.
At the same time, several recent climate stress tests conducted by European supervisory authorities provide concrete insights into the sector’s resilience to both physical and transition risks.
In this article, we explore the ongoing updates of Solvency 2, their potential impact on insurers, key finding from climate stress tests, and the strategic actions insurers can take to adapt to these changes.
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