The European Insurance and Occupational Pensions Authority (EIOPA) published a discussion paper on a methodology for the potential inclusion of climate change in the Solvency II standard formula when calculating natural catastrophe underwriting risk.
Today, the European Insurance and Occupational Pensions Authority (EIOPA) published a discussion paper on a methodology for the potential inclusion of climate change in the Solvency II standard formula when calculating natural catastrophe underwriting risk.
This discussion paper is a follow-up to EIOPA’s Opinion on Sustainability within Solvency II
issued in September last year, which concluded that there is a need to
consider if and how climate change-related perils could be better
captured in the Solvency II framework under the natural catastrophe risk
submodule.
The frequency and severity of natural catastrophes is expected to
increase due to climate change. Improved climate projections provide
evidence that weather extremes such as heat waves, heavy precipitation,
droughts, top wind speeds and storm surges will rise in many European
regions. To ensure the financial resilience of (re)insurers covering
natural catastrophes, the solvency capital requirements for natural
catastrophe underwriting risk need to remain appropriate in light of
climate change.
In line with that, EIOPA proposes different methodological steps and
process changes to integrate climate change in the calculation of
natural catastrophe risk and invites all interested stakeholders to
provide comments by 26 February 2021.
EIOPA
will consider the feedback received and expects to publish the final
report in the summer of 2021 together with a feedback statement on the
consultation responses of stakeholders.
EIOPA’s sustainable finance agenda
This discussion paper is part of EIOPA’s broader sustainability
agenda to integrate environmental, social and governance (ESG) risk
assessment in the regulatory and supervisory framework. EIOPA is
committed to supporting the European insurance and occupational pension
sectors in their transition to climate neutrality and to deliver on the
‘Green Deal’ initiated by the European Commission.
EIOPA’s work on sustainable finance is driven by three objectives:
(i) insurers should manage and mitigate ESG risks, (ii) insurers and
pension funds should reflect policyholders and pension scheme members’
preferences for sustainable investments and (iii) insurers and pension
funds should adopt a sustainable approach to their investments based on
principles of stewardship. This reflects the important role insurers and
pension funds can play in enabling climate change mitigation and
adaption. A key element to foster sustainable growth and to channel
funding in economic activities enabling and contributing to
environmental, social and governance-related objectives, is to improve
data availability and therewith the public disclosure of relevant
metrics by reporting entities as well as improving transparency on risks
arising from climate change.
Join our Sustainable Finance Roundtable
on 16 December 2020 and be part of discussion about EIOPA’s ongoing
consultation on the scenario analysis in ORSA, activities on disclosure
and non-financial reporting, impact underwriting, protection gap for
natural catastrophes and sensitivity analysis for transition risk.
EIOPA
© EIOPA
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