A final report from Eiopa on its proposal is expected in the next few months. Fitch says EU regulators are aware and concerned about climate change risk facing the insurance industry and therefore capital charges for nat cat exposures are almost certain to rise.
The European Insurance and
Occupational Pensions Authority’s (Eiopa) plans to impose capital charges for
insurers’ exposure to nat cat risk could affect pricing and the insurability of
such risks, warns Fitch.
“As the severity and frequency
of nat cat claims increases… the insurance and reinsurance industry will have
to provide more and more capital to cover the same amount of risk exposure,”
Fitch states in a new report.
In turn, prices will rise and
buyers may not be able to pay for nat cat protection, which could trigger state
intervention, Fitch adds.
“Governments may decide to
provide insurance cover above and beyond what the insurance and reinsurance
industry may be willing or able to offer,” Fitch notes.
But the report adds that
climate change will have a minimal impact on most European insurers’ ratings,
despite being the most important environmental, social and governance (ESG)
risk for non-life companies.
In analysis of the impact of
climate change on insurers’ credit profile, Fitch has assigned most (75%) an
ESG relevance score of three (minimal impact), for exposure to environmental
impacts (EIM). This is on a scale that ranges from one to five.
Lloyd’s was the only European
issuer to record a score of four (medium impact) for EIM risk. This is based on
its underwriting and reserving exposure to nat cat risks with a property
account at 45% of gross written premium in 2019, Fitch said. It added that
Lloyd’s’ financial strength rating exposure to global catastrophes is high,
although it has come down in recent years.
A further 23% of carriers,
mainly niche businesses including credit insurer Coface and Nuernberger
Beteiligungs, with low or no exposure to nat cat risk, recorded EIM scores of
two (no impact).
Fitch says nat cat risk and the
impact of climate change is built into capital requirements, which it says are
well managed by insurers.
CRE
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