Climate Change Risk Assessment for the Insurance Industry

February 2021

Climate Change Risk Assessment

for the Insurance Industry

A holistic decision-making framework and key

considerations for both sides of the balance sheet

Climate Change Risk Assessment for the Insurance Industry

The Geneva Association Task Force

on Climate Change Risk Assessment for the Insurance Industry

Maryam Golnaraghi (project leader and coordinating author), The Geneva Association

Drafting team:

Ian Adamczyk, Moya Chew-Lai (retired), Li Liu, Sean Collins, Prudential Financial

Hjörtur Thrainsson, Munich Re

Michèle Lacroix, Paul Nunn, SCOR

Martin Bertogg, Swiss Re

Other team members:

Gijs Kloek, Achmea | Pedro Nascimento de Oliveira, Aegon

Jennifer Waldner, David Buckle, Anthony L Zobl, AIG

Sebastian Fischer, Allianz | Ben Carr, Bianca Hanscombe, Jean-Francois Coppenolle, Aviva Dora

Elamri, Olivier Poissonneau, Helene Chauvea, AXA | Gloria Jimenez, Alex Speers, Chubb

Hidenao Makiuchi, Kazumi Hayashi, Dai-ichi Life | Jörg Steffensen, Hannover Re

Brandon Blant, Mandy Dennison, Pierre Bernard, Laura Willett, Intact Financial

Cindy Forbes, Margaret Eve Childe, Maria McGowan, Herman Ko, Manulife

Diana Keegan, Anna Warm, MetLife | Eberhard Faust (retired), Munich Re

Junaid Seria, Yun Wai-Song, SCOR | Martin Weymann, Swiss Re

Z. Ming Li, John Campbell, Kei Kato, Tokio Marine | Dennis Noordhoek, The Geneva Association

Climate Change Risk Assessment

for the Insurance Industry

A holistic decision-making framework and key

considerations for both sides of the balance sheet

www.genevaassociation.org

The Geneva Association

The Geneva Association was created in 1973 and is the only global association of insurance companies; our

members are insurance and reinsurance Chief Executive Officers (CEOs). Based on rigorous research conducted

in collaboration with our members, academic institutions and multilateral organisations, our mission is to

identify and investigate key trends that are likely to shape or impact the insurance industry in the future,

highlighting what is at stake for the industry; develop recommendations for the industry and for policymakers;

provide a platform to our members, policymakers, academics, multilateral and non-governmental organisations

to discuss these trends and recommendations; reach out to global opinion leaders and influential organisations

to highlight the positive contributions of insurance to better understanding risks and to building resilient and

prosperous economies and societies, and thus a more sustainable world.

Acknowledgements

The Task Force would like to thank the members of the Geneva Association Climate Change and Emerging Environmental

Topics Working Group and the Public Policy and Regulation Working Group for their review and feedback. We extend our

special thanks also to: Chris Boss and Maeve Sherry (Aviva); Liesbeth van der Kruit and Gijs Kloek (Achmea); Edward Barron

(AIG); Simone Ruiz-Vergote and Andreas Funke (Allianz); Patricia Plas, Celine Soubranne and Madeleine-Sophie Deroche

(AXA); Laura Willet (Intact Financial); Hidehiko Sogano and Jiro Kamiko (Dai-ichi Life); Diana Keegan (MetLife); Panos

Charissiadis (Munich Re); Guillaume Ominetti (SCOR); Urs Halbeisen and Marion Lienhard, Stefan Roth, Tobias Wassmann,

Lutz Wilhelmy (Swiss Re). Finally, we appreciate the helpful comments of Christophe Courbage and Kai-Uwe Schanz (The

Geneva Association).

Geneva Association publications:

Pamela Corn, Director Communications

Hannah Dean, Editor and Content Manager

Petr Neugebauer, Digital Media Manager

Suggested citation:

The Geneva Association. 2021. Climate Change Risk Assessment

for the Insurance Industry. February. Authors: Maryam Golnaraghi

and the Geneva Association Task Force on Climate Change Risk

Assessment for the Insurance Industry.

www.genevaassociation.org

Photo credits:

Cover page— Elena11 and Fit Ztudio / Shutterstock.com

Climate Change Risk Assessment for the Insurance Industry

Contents

Foreword 5

1. Executive summary 6

2. Context 10

3. Terminology 13

4. How does climate change impact the insurance industry? 15

4.1 Framing climate change risks and relevant time horizons for decision-making 15

4.2 Implications of climate change risk for P&C and life re/insurers – Liability side 18

P&C re/insurers 18

Physical risk 19

Transition risk 20

Life re/insurers 22

Physical risk over the short term 22

Transition risk over the short term 22

Physical and transition risk over the long term 22

4.3 Implications of climate change risk for P&C and life re/insurers – Asset side 23

Physical risk 23

Transition risk 23

4.4 Key questions re/insurers ask when embarking on climate change risk assessments 24

5. Approaches to climate change risk assessment 25

5.1 Quantitative tools 26

5.2 Qualitative tools 27

6. Summary and conclusions 28

References 30

Annexes

Annex 1: Climate change-related activities of regulatory authorities 33

Annex 2: P&C and life insurance business models 35

www.genevaassociation.org

Abstract

The Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosure

(TCFD) has raised the need for decision-relevant, clear, consistent and comparable

climate information for stakeholder groups to inform investing. The insurance industry

is well positioned to take the lead in advancing the forefront of methodologies and

tools that produce meaningful and decision-useful information: risk is the raison d’être

of the industry, and risk assessment is already deeply embedded in companies' risk

management, underwriting and investment processes. Building on a history of physical

climate risk modelling, and through the platform of The Geneva Association, the insur-

ance industry is taking steps to strengthen further its global collaboration across P&C

and life re/insurers to advance methodologies and tools for climate risk assessment and

scenario analysis for both sides of the balance sheet. This report – the ﬁrst in a series of

three – offers a holistic decision-making framework for P&C and life re/insurers, for both

the liability and asset sides of the balance sheet, taking into consideration all aspects of

climate change risk (i.e. physical and transition risks) by line of business (LoB) and over

distinct time horizons. This analysis offers a foundation for the Geneva Association Task

Force’s work to drive future developments in this space.

Tragically, the effects of climate change are becoming more palpable and harder to

ignore. Persistently warming temperatures and sea-level rise. Compromised ocean

ecosystems. Gigantic wildﬁres in Australia and California and a record hurricane season

in the Atlantic. The societal impacts are worldwide, and individuals and institutions must

fully commit now to confronting the climate crisis.

For their part, insurers are already contributing signiﬁcantly to the transition to a low-

carbon economy. On the liabilities side, more insurers are factoring climate risk into their

underwriting decisions. On the asset side, many companies have investment strategies

that support climate mitigation. An important next step is to develop and hone climate

risk assessment methodologies and tools.

There are many calls for collaboration within and across industries to tackle this. And that

is precisely the aim of the Geneva Association task force: to bring the global insurance

industry to the same table to develop effective approaches to climate risk assessment.

However, working in industry silos is not enough. Cooperation with regulators, rating

agencies, and the scientiﬁc community is critical to deciding the most viable ways

forward. Our initiative is closely engaging those stakeholders as well.

This ﬁrst report of the task force sets out a climate risk assessment framework for

both P&C and life insurers, urging companies to start with a simpliﬁed approach. They

should focus on two time horizons – short term (2020–2030) and long term (2030–

2050) – and the potential implications of physical and transition risks for both sides of

the balance sheet.

As underwriters, insurers are at the forefront of understanding and preventing risk.

As asset managers, they can steer massive amounts of capital to climate-resilient

investments. Insurers are obvious, strong leaders on global climate action, and our

industry-led initiative reinforces that they are willing and eager to forge ahead.

Jad Ariss

Managing Director

Foreword

Climate Change Risk Assessment for the Insurance Industry

www.genevaassociation.org

There is now widespread global recognition of climate change science and

the associated socio-economic impacts as set out by the United Nations

Intergovernmental Panel on Climate Change (IPCC).

While governments have

submitted their Nationally Determined Contributions (NDCs) to mitigate the

impacts of climate change,

the development of public policies for an orderly

transition to a low-carbon future has been stubbornly slow. Progress has however

been made through the ﬁnancial sector in developing a framework for disclosures

of climate change risks, through the Financial Stability Board (FSB) Task Force for

Climate Related Financial Disclosure (TCFD). With the aim to inform investing in

a climate sensitive way, among other recommendations, the TCFD seeks clarity

around how companies identify, assess and manage climate change risk.

3,4

Risk is the raison d’être of the insurance industry, and risk assessment is already

deeply embedded in organisations’ risk management and underwriting processes.

P&C re/insurers are well prepared for the catastrophic impact of weather-related

extremes today and are robustly capitalised to ‘weather the storms’ and be there

for policyholders when disasters strike. For the past 30 years, P&C re/insurers

have provided leadership in modelling and pricing natural catastrophe (NatCat)

risk; conducting research and promoting risk reduction and preventive measures.

Furthermore, by understanding the risks, re/insurance fosters socio-economic

resilience to natural catastrophe risk, ampliﬁed by climate change. By offering

innovative risk transfer solutions, re/insurers enable the entrepreneurial pathways

from startup to commercialisation of the clean and green technologies of the

future and incentivise reduction in greenhouse gas (GHG) emissions (e.g. green

building insurance). In order to better tackle the challenges of shifting the

economy to a low-carbon model, re/insurers also participate in various alliances to

promote science-based methodologies, share expertise and collaborate to ensure

stronger impact on the real economy.

As institutional investors, many P&C and

life re/insurers are taking steps to integrate climate change in their investment

strategies and make investment decisions that support climate mitigation.

Re/insurers are also actively involved in initiatives to develop sustainable ﬁnance

frameworks that aim to mobilise mainstream ﬁnance to invest at scale in

transitioning to a resilient low-carbon economy.

1 IPCC 2014, 2018.

2 National NDCs have been submitted to the UN Framework Convention of Climate Change

(UNFCCC).

3 The TCFD has called for voluntary climate-related ﬁnancial disclosures that are 'consistent,

comparable, reliable, clear and efﬁcient and provide decision-useful information to lenders,

insurers and investors'.

4 TCFD 2017, 2020.

5 For example Climate Action 100+ : https://climateaction100.wpcomstaging.com/companies/ and

the Net-Zero Asset Owner Alliance: https://www.unepﬁ.org/net-zero-alliance/

6 The Geneva Association 2018a.

1. Executive summary

Climate Change Risk Assessment for the Insurance Industry

Many P&C and life re/insurers are

already taking steps to integrate climate

change in their investment strategies

and make investment decisions that

support climate mitigation.

To reach the climate change goals set out in the

Paris Agreement,

and pivot away from carbon-

intensive sectors, dramatic changes in business

models and everyday life are needed to impact the

core and essential sectors of the world economy.

Transitioning to a lower-carbon economy will entail

extensive public policy, legal, technology, market

and consumer behaviour changes over time.

Policy

measures may include limiting actions that contribute

to climate change, promoting adaptation or driving

business-model changes in economic sectors. Climate

litigation cases take many forms, for example, some

of those who suffer loss or expect to suffer loss as a

result of climate change-related impacts are already

pursuing judicial remedies to recover damages or fund

abatement efforts, while others are using litigation as

a tool to leverage more ambitious climate policy and

actions or to oppose them.

Inevitable technological

innovations and disruptions for the transitioning in

many sectors in the years to come will have significant

impacts on organisations and their competitiveness

(e.g. energy, food production, transportation,

materials).

Other uncertainties are linked to varied

and complex effects on the markets (e.g. supply and

demand, products and services).

The uncertainties inherent to transition

risk create challenges for re/insurers to

conduct climate risk assessment across

all aspects of the insurance business

model.

7 United Nations 2015.

8 TCFD 2017.

9 Based on research by The Geneva Association (forthcoming).

10 RethinkX 2020.

11 UNEP-FI PSI 2021, 2020; UNEP-FI 2019; UNEP-FI and Oliver Wyman 2018; ClimateWise 2019a–d.

12 CRO Forum 2018.

13 The Geneva Association is an international think tank. Its members are CEOs of the largest re/insurance companies (P&C and life), which in total

manage USD 17.1 trillion in assets; employ 2.4 million people; and protect 1.8 billion people globally.

14 The Board’s decision followed two Geneva Association conferences on this topic: 1) How Will Risk Modelling Shape the Future of Risk Transfer?,

hosted by SCOR (9 March 2017, Paris) https://www.genevaassociation.org/how-will-risk-modelling-shape-future-risk-transfer; and

2) Advancements in the Modelling and Integration of Physical and Transition Climate Risk, hosted by Tokio Marie (11–12 July 2019, London) https://

www.genevaassociation.org/climate-change-forum-2019

While re/insurers start from strong foundations, these

inherent uncertainties associated with transition risk (i.e.

policy, legal, technology and market risks) across future

time horizons of climate change bring some additional

challenges to conducting meaningful, decision-useful and

holistic climate risk assessment across all aspects of the

insurance business model (Annex 2).

Re/insurers are initiating and/or engaging in various

intra- and inter-sectoral pilot projects to develop new

methodologies,

publishing risk reports

and developing

proposals for appropriate decision-relevant assessments

and disclosure of climate change risks, including the TCFD.

For P&C re/insurers, their deep knowledge in extreme

weather risk modelling has been also instrumental

to raising awareness on the asset side; for example,

leveraging NatCat risk modelling and expertise has led

to a better grasp of the potential impacts on real estate

investments. However, much more work lies ahead to

converge on robust methodologies.

Against this backdrop, in 2020, at the request of

its Board of Directors, The Geneva Association

(GA) established an industry-led ‘Task Force on

Climate Change Risk Assessment for the Insurance

Industry’, involving global P&C and life re/insurance

companies.

13,14

The GA Task Force’s aim is to

advance and accelerate the development of holistic

methodologies and tools for conducting meaningful

and decision-relevant climate risk assessment and

scenario analysis. These efforts aim to shape future

The Geneva Association Task Force on Climate

Change Risk Assessment aims to advance

and accelerate the development of holistic

methodologies and tools for conducting climate

risk assessment and scenario analysis. These efforts

aim to shape future innovations and support

re/insurers, regulators and other stakeholders in

shaping innovations in this space.

The Geneva Association Task Force

www.genevaassociation.org

innovations and support re/insurers, regulators and

other stakeholders in shaping innovations in this space.

This report offers a holistic decision-making framework

for designing climate risk assessments for P&C and life

re/insurers for both the liability and asset sides of the

balance sheet. It takes into consideration all aspects

of climate change risk by line of business (LoB) and for

distinct time horizons.

Key findings

1. The development of climate risk assessment

methodologies and tools, such as scenario

analysis, that would produce meaningful

and decision-useful information is a work in

progress. Despite some actions by stakeholder

groups (e.g. re/insurers, financial institutions,

regulatory and standard setting bodies,

international organisations, commercial data

providers, consulting firms and academia),

initiatives remain fragmented and considerable

work lies ahead because of the quickly evolving

nature of climate science as well as other factors

that will influence transition efforts. Achieving

consensus will take time.

2. There are several sources of uncertainty

associated with transitioning that need to be

considered in a climate risk assessment. Over

the next decades, public policies, regulations,

technological advancement, market conditions

and other aspects of societal transition towards

low-carbon economies will affect the level of

climate change risk and the future risk landscape.

These factors highlight some of the inherent

uncertainties that must be considered and

accounted for when assessing exposure to climate

change risk.

3. Climate change poses varying levels of physical

and transition risk to both sides of the balance

sheet (liabilities and assets) for P&C and life

re/insurers. The time horizon over which the risk

manifests itself is a key factor and varies across the

different lines of business and investments, which

adds to the complexity of assessing climate risk

impacts.

i. P&C and life re/insurers have exposure to both

physical and transition risks on the liability side.

• Physical risk: P&C insurers are already

experiencing an evolution in risk exposures as

a result of gradual climate change. Through

extensive investments in NatCat-centric

research, the industry has developed a robust

natural catastrophe risk management system to

understand the present amount of embedded

climate change. Property catastrophe portfolios

are in focus, but they benefit from a short-tail

liability pattern. With the majority of affected

property insurance cover offered on an annual

basis, P&C re/insurers have the opportunity

to monitor gradual changes to the climate

risk landscape and consider adjustments to

pricing and/or product offerings. While this

is an instrumental protection layer for P&C

re/insurers, they have to watch for insurability

and work on the viability of their business

model over longer time horizons (2030–2050).

For life re/insurers, the evolution in the physical

risk exposure will be longer term in nature

and through their underwriting. The long time

horizon, over which these risks materialise,

makes reliable and meaningful scenario analysis

a challenging task.

• Transition risk: For P&C and life re/insurers,

transition risk may emerge as society

transitions towards lower carbon emissions

and the potential impacts of climate change

become clearer. More broadly, physical and

transition risks are interconnected, e.g. actions

to address transition risk, if taken early enough,

will positively influence the severity and

frequency of physical risks.

ii. Re/insurers are exposed to both physical and

transition risk on the asset side.

Through their investment portfolios,

re/insurers are exposed to both physical

and transition risks. The increasing call for

transparency alongside increasing regulation

on sustainable finance are catalysts for

increasing consideration of climate change

risk and mitigation actions. When deciding

on sectors and geographical allocation and

investee selection, re/insurers are increasingly

considering the resilience of their portfolio and

mitigation actions such as divestment, best-in-

class strategies and engagement.

Climate Change Risk Assessment for the Insurance Industry

4. Re/insurers should engage in robust dialogue on

climate change risk across the organisation to raise

risk awareness, strengthen collaboration to leverage

expertise across the company and ensure adequate

actions are taken where and when necessary. This

report presents key questions that re/insurers are

asking to focus and facilitate their work and identify

the decisions and actions needed today.

5. A combination of qualitative and quantitative

approaches for assessing climate change risk

over the various time horizons is required. For

example, near-term business considerations and

risk management decisions for P&C re/insurance

businesses require quantitative assessments,

starting with physical risk. However, long-term

projections (e.g. to 2050 or beyond) entail

multi-dimensional uncertainty (e.g. physical,

socio-economic conditions) and thus may be

better assessed through qualitative approaches

and serve to support raising risk awareness and

the high-level, strategic steering of business and

investments.

6. Re/insurers, as risk managers and investors, play

an important role in understanding the risks

associated with climate change and educating

stakeholders (e.g. customers, policymakers,

regulators) on how climate change will impact

society. The results of re/insurers’ research,

risk modelling, underwriting and investments,

could not only complement but also inform the

broader actions that are needed by governments,

policymakers, regulators, corporations and society

as a whole.

Re/insurers, as risk managers and

investors, play an important role in

understanding the risks associated

with climate change and educating

stakeholders on how climate change

will impact society.

www.genevaassociation.org

Over the last ﬁve years, actions for transitioning to a resilient low-carbon economy

have been slowly gaining momentum within the public and private sectors. A

pivotal point was the launch of the Financial Stability Board’s Task Force on Climate-

Related Financial Disclosure,

which raised the need for decision-relevant, clear,

consistent and comparable climate information for stakeholder groups. The TCFD

provided principles-based guidance on climate-related ﬁnancial disclosures based

on climate-related risks, opportunities and scenario analysis. Growing adoption

of TCFD recommendations by companies in various sectors points to the need to

further develop and test industry-speciﬁc methodological approaches to climate risk

assessment, including relevant scenario analysis and stress testing.

Sustainable ﬁnance initiatives around the world aim to

mobilise mainstream ﬁnance towards environmentally

sustainable investments in order to mitigate global

warming and related risks.

Sustainable ﬁnance initiatives around the world (e.g. EU Action Plan on Sustainable

Finance and the European Commission Renewed Sustainable Finance Strategy,

Canadian Expert Panel on Sustainable Finance,

and the Australian Sustainable

Finance Initiative

) aim to mobilise mainstream ﬁnance towards environmentally

sustainable investments through both the public and private sectors with the

ultimate objective to limit global warming and related risks. Access to high-quality,

reliable and comparable climate change risk information – as per the TCFD – would

help facilitate these developments.

Climate risk assessment and related disclosures are gaining momentum among

ﬁnancial services and insurance regulators and standard setting bodies, such as

the International Association of Insurance Supervisors (IAIS) together with the

Sustainable Insurance Forum (SIF), the Network for Greening the Financial System

(NGFS), the European Insurance and Occupational Pension Authorities (EIOPA),

the Prudential Regulation Authority (PRA) at the Bank of England (BoE), the French

supervisory authority (ACPR), the central bank and ﬁnancial regulatory authority

in Singapore (MAS), The Australian Prudential Regulation Authority (APRA),

15 TCFD 2016.

16 TCFD 2017.

17 TCFD 2018, 2019.

18 For more information: https://ec.europa.eu/info/consultations/ﬁnance-2020-sustainable-ﬁnance-

strategy_en

19 For more information: https://www.canada.ca/en/department-ﬁnance/news/2019/06/expert-

panel-on-sustainable-ﬁnance-delivers-ﬁnal-report-ﬁnance-minister-joins-international-climate-

coalition.html

20 For more information: https://www.sustainableﬁnance.org.au/

2. Context

Climate Change Risk Assessment for the Insurance Industry

the National Association of Insurance Commissioners

(NAIC) and various state insurance regulators and the

Commodities Future Trading Commission (CFTC) in the

U.S. and Canada’s Ofﬁce of the Superintendent of Financial

Institutions (OSFI) and Bank of Canada (Annex 1).

In parallel, international rating agencies such as Moody’s

and Standard & Poor’s are investing in building their in-

house capacities in climate risk analytics and increasingly

considering climate change risk in their company,

municipal and sovereign credit rating practices.

21,22

The insurance industry is already taking action to

address the climate change challenge.

For over three

decades, P&C re/insurers have invested in climate

21 For more information about S&P ratings and the latest report cards for companies from different sectors see: https://www.spglobal.com/ratings/

en/products-beneﬁts/products/esg-in-credit-ratings#sector-report-cards.

22 Moody’s 2018, 2019; Standard & Poor’s 2018, 2020.

23 The Geneva Association 2018a. Author: Maryam Golnaraghi.

24 The Geneva Association 2018b. Authors: Maryam Golnaraghi et al.

25 The Geneva Association 2016; The Geneva Association 2018a; The Geneva Association 2020a. Authors: Maryam Golnaraghi et al.; The Geneva

Association 2020b. Authors: Carolyn Kousky and Maryam Golnaraghi; The Geneva Association 2020c. Author: Swenja Surminksi et al.; The Geneva

Association 2020d. Authors: Swenja Surminski et al.; The Geneva Association 2020e. Authors: Neil Duffy et al.; The Geneva Association 2020f.

Authors: Maryam Golnaraghi et al.

26 Catastrophe modelling efforts are also underway to address insurance protection gaps in both developed and developing nations, through stronger

private and public cooperation (The Geneva Association 2018b and 2020a-f and Insurance Development Forum 2020).

risk research, analysis and pricing, as part of their

NatCat modelling(Box 1).

P&C re/insurers have been

instrumental in raising climate risk awareness, promoting

risk reduction and preventive measures and innovating

risk transfer solutions to build socio-economic resilience

to physical climate risks (e.g. extreme weather events)

in a changing climate.

Through their product offerings,

re/insurers are also incentivising reduction in greenhouse

gas emissions and enabling entrepreneurial pathways for

the commercialisation of clean, green and carbon capture

and storage technologies. As institutional investors, P&C

and life re/insurers are considering portfolio strategies

that increasingly integrate climate change considerations,

investing in bonds (e.g. green, resilient, transition and

catastrophe bonds) and establishing alliances (e.g. Climate

Since 1980 the insurance industry has been monitoring and maintaining databases of losses from natural

disasters and how these have evolved with respect to frequency and severity, with an increase of insured losses

from extreme weather by an order of magnitude over ﬁve decades, inﬂation adjusted. The largest drivers of the

observed increase in NatCat losses are exposure-related, e.g. economic growth, property-value concentrations,

migration to coast lines, urban sprawl in hazardous areas and damages to vulnerable infrastructure.

The success of property catastrophe insurance modelling also draws from the nearly universal one-year-coverage

scope, allowing the industry to remain in lock-step with an evolving risk landscape, linked to changes to exposure,

natural climate variability over decades or underlying impacts of anthropogenic climate change on physical risks.

While explicit attribution of already-present physical climate change for most perils is still elusive with the current

state of science, the industry models successfully track a rapid change in the risk landscape in aggregation of all

trends, hazard and exposure alike.

Over the last few years, by using its quantitative exposure monitoring and NatCat risk modelling capabilities, the

P&C re/insurance industry has managed to successfully address this rapid increase in insured loss potential, from

changes to both hazard and exposure, and was able to withstand losses from several major events – Hurricanes

Katrina, Rita and Wilma in 2005, the series of tropical cyclones in 2017, 2018 and 2019 in the U.S. and Japan –

illustrating successful risk management practices on the back of probabilistic quantitative NatCat modelling.

The industry strives to evolve the forefront of NatCat modelling to derive decision-useful quantitative information

to inform today’s high-level portfolio strategy decisions, including stronger attribution to individual risk trends

like climate change. Today's NatCat models are designed to provide decision-useful output for the blend of

hazard, exposure, vulnerability and insurance-cover speciﬁcs that are present today. The latter three factors have

been the dominant drivers for key natural perils exposure in the past ﬁve decades. While highly useful for today's

and next year’s portfolio management, catastrophe models are limited in providing decision-useful quantitative

information over a longer term, impeding progress toward a forward-looking climate change and exposure/

vulnerability landscape. Understanding and anticipating the dominant drivers next to climate change will be

paramount for conditioning these models for more distant futures.

Box 1: Modelling the risk of extreme weather events in property insurance – Status quo

www.genevaassociation.org

Action 100+, the Net-Zero Asset Manager Alliance) for

investing at scale in resilient low-carbon business models.

Through their product and service

offerings, insurers are building socio-

economic resilience to extreme

weather events, incentivising reduction

in greenhouse gas emissions and

enabling entrepreneurial pathways

for commercialising clean, green

and carbon capture and storage

technologies.

However, while quantitative and probabilistic NatCat risk

modelling has become an industry best practice and a

core part of property re/insurers’ operations, developing

methodologies and tools for holistic climate change risk

modelling and scenario analysis, for both sides of the

balance sheet, go signiﬁcantly beyond these efforts and

require further development.

While at different stages in the process, P&C and life

re/insurers globally are undertaking activities across their

organisations to assess their exposure to climate change

risks. Insurer experiences have highlighted the many

challenges related to conducting climate change risk

assessments, for example:

• How to holistically consider physical and transition

risks and their linkages

• Determining appropriate time horizons

• Deﬁning and executing meaningful and decision-

relevant scenarios

• Addressing gaps in data, methodologies and tools

• Dealing with numerous other inherent uncertainties

Strong industry-level collaboration and

engagement with other stakeholders

are needed for the cross-fertilisation

of ideas to advance climate risk

assessment for both sides of the

balance sheet.

At this stage, re/insurers are gaining expertise, raising

risk awareness through risk assessment exercises and

facilitating intra- and inter-organisational dialogues. This

expertise enables decision-useful analysis that results in

industry actions today and avoids analysis paralysis. Over

time, with scientiﬁc progress and increasing experience,

the issues to consider and expectations of all stakeholders

will evolve. As part of this journey, strong industry-level

collaboration with other stakeholders is needed for cross-

fertilisation of ideas and concepts to advance climate risk

assessment for both sides of the balance sheet.

Against this backdrop, in 2020, The Geneva Association’s

industry-led ‘Task Force on Climate Change Risk

Assessment for the Insurance Industry’ (hereafter referred

to as ‘the GA Task Force’) was established to leverage

stronger global collaboration and engagement with other

stakeholders, to provide a more holistic, industry-level

perspective for climate risk assessment, and forward-

looking scenario analysis for P&C and life re/insurers for

both sides of the balance sheet.

This report offers a holistic decision-making framework

for designing climate risk assessments for P&C and life

re/insurers, for both the liability and asset sides of the

balance sheet, for all aspects of climate change risk (i.e.

physical and transition risks), by LoB and for distinct time

horizons.

In a second step, the Task Force will analyse the trends,

approaches and challenges related to the regulatory

landscape and explore opportunities for multi-stakeholder

collaboration to advance methodologies and tools for

climate risk assessment and scenario analysis.

The Task Force will then take a deep technical dive to push

the forefront of scenario design and methodologies and

tools for meaningful and decision-useful scenario analysis

and stress testing.

Section 3 of this report provides an overview of key

deﬁnitions. In section 4 we describe how climate change

impacts re/insurers (P&C and life) on both sides of the

balance sheet, with a focus on physical and transition

risks, type of decisions and relevant time horizons. Section

5 offers an overview of tools and approaches to conduct

climate risk assessment, which will be further expanded

in future reports of this series. Recommendations are

provided in section 6.

Climate Change Risk Assessment for the Insurance Industry

In this report, the terms ‘climate risk’ and ‘climate change risk’ are not used

interchangeably.

Climate risk refers to the (extreme) weather-related risk that P&C re/insurers

underwrite at any given time.

Climate change risk is based on the TCFD’s

deﬁnitions, broadly accepted and

including transition risk and physical risk.

• Physical risk is deﬁned as the potential negative ﬁnancial impacts that

could arise from direct physical effects, such as the destruction of property

and infrastructure, and indirect impacts, such as business or supply chain

interruptions, due to the increasing severity and frequency of extreme weather

events (acute risks) and long-term shifts in climate patterns (chronic risks)

caused by climate change.

• Transition risk is deﬁned as the risks which could result from the process of

transitioning towards a low-carbon economy. The TCFD notes that transitioning

to a lower-carbon economy may entail extensive policy, legal, technology and

market changes to address mitigation and adaptation requirements related to

climate change.

Depending on the nature, speed, and focus of these changes,

transition risks may pose varying levels of ﬁnancial and reputational risk to

organisations.

According to the TCFD,

transition risk also includes climate litigation or legal

risk, i.e. climate-related litigation claims brought before the courts by property

owners, municipalities, states, insurers, shareholders and public-interest

organisations. Reasons for such litigation include the failure to mitigate the

impacts of climate change, failure to adapt to climate change and insufﬁcient

disclosure around material ﬁnancial risks. As the value of loss and damage

arising from climate change grows, litigation risk is also likely to increase.

Climate risk assessment refers to assessing climate change risks and ‘climate risk

management’, or managing climate change risks.

Climate change scenario analysis has been identiﬁed as one of the key priority

areas for climate risk management.

Box 2 provides the deﬁnitions of scenario

analysis, stress testing and sensitivity analysis that are used in this report.

27 TCFD 2017.

28 Ibid.

29 Ibid.

30 The Geneva Association is conducting a separate study looking at the evolving landscape of global

climate litigation landscape and related sources of climate litigation and risks, using a broader

deﬁnition than the TCFD’s and covering more cases.

31 Carney 2019; TCFD 2017.

3. Terminology

www.genevaassociation.org

While these broad categories are helpful for

contextualising climate change risk, a number of

underlying facets must be considered when assessing the

potential impacts over the short- to medium- and long-

term time frames (e.g. next 5–10 years, next 30 years).

For example, while often discussed as distinct exposures,

it is important to acknowledge the interconnection

between transition and physical risks. Speciﬁcally, if

society (e.g. policymakers, corporations in carbon-

intensive sectors, investors, consumers, etc.) is able to

accelerate the transition by taking actions to reduce

carbon emissions and thereby global warming, it may

reduce the extent to which acute and chronic physical

risks materialise. Conversely, an absence of action by

society is likely to lead to more severe global warming and

physical risks. Unfortunately, it will take decades for the

consequences of today’s actions to become evident.

The use of forward-looking scenario analysis for climate

risk assessment, an explicit recommendation of the TCFD,

is being considered.

Scenario analysis is essential for

assessing emerging risks, in this case related to climate

change in the face of signiﬁcant uncertainties, and

employs the following approaches:

32 TCFD 2017.

1. Quantitative scenario analysis, which focuses on

understanding the potential impact of a pathway

of action, or inaction, by society to address climate

change risk from a dollar and/or percentage

perspective; for example, by how much would asset

values decline? By how much would liability values

increase? However, quantifying the impacts of climate

change can be challenging, particularly over the long

term, given the inherent uncertainty of key drivers

including the timing and breadth of policy action and

technological developments, second-order impacts

to economic variables and other relevant changes to

economic and social conditions.

2. Qualitative scenario analysis, which also aims

to understand the potential impact of a transition

pathway; however, rather than measuring the impact

from a dollar or percentage perspective, qualitative

scenario analysis focuses on formulating the potential

consequences of a transition pathway (e.g. assumed

government mitigation/adaptation measures,

technology and market developments), including the

business implications and actions that may be needed.

Forward-looking scenario analysis is

essential for assessing emerging risks,

such as for climate change in the face

of signiﬁcant uncertainties.

These will be further elaborated in section 5.

Scenario analysis has been a well-established

tool in risk analysis for the forward-looking

assessment of risks and opportunities. It is ‘a

process for identifying and assessing the potential

implications of a range of plausible future states

under conditions of uncertainty’. Scenario analysis

can be quantitative, qualitative or a mix of both.

A stress test is a projection of the ﬁnancial

condition of a ﬁrm or economy under a speciﬁc

set of severely adverse conditions. This may be the

result of several risk factors over multiple periods

of time or one risk factor that is short in duration.

Stress testing is always quantitative.

A sensitivity analysis is the ‘effect of a set

of alternative assumptions regarding a future

environment’. A scenario used for sensitivity

testing usually represents a relatively small

change in these risk factors or their likelihood of

occurrence. Sensitivity analysis is predominantly

quantitative but can also be qualitative.

Source: OECD 2020

Box 2: Definitions of scenario analysis,

stress test and sensitivity analysis

Climate Change Risk Assessment for the Insurance Industry

4.1 Framing climate change risks and relevant time horizons

for decision-making

Many of the risks re/insurers shield their policyholders from have remained broadly

the same over time; for example, the need for ﬁnancial protection in the case of

premature death and the need for protection against physical damage to assets.

However, the ever-changing nature of the world introduces challenges, such as

climate change, that must be accounted for when assessing the expected frequency

and severity of the existing spectrum of risks.

When assessing climate change risk, re/insurers need to consider a number of

critical factors, namely physical and transition risks and relevant time horizons for

their decision-making. Table 1 provides an overview of different types of risks that

can be considered under physical risk (i.e. chronic and acute risks) and transition

risk (i.e. policy risk, litigation or legal risk, market risk and technological risk) and

their relation to re/insurers’ risk landscape over two time horizons: 1) the short- to

medium-term, or ‘business-planning’, time horizon (suggested as 2020–2030) and

2) the long-term, or ‘strategic-planning’, time horizon (suggested as 2030–2050).

In order to target decision-useful analytics for action today, time horizons beyond

2050 have been purposely excluded. More details on these time horizons are

provided in the sections on implications for P&C insurers and life insurers, on both

the liability and investment sides of the balance sheet.

33 CRO Forum 2018; Lloyd’s of London 2020a,b.

4. How does climate

change impact the

insurance industry?

www.genevaassociation.org

Over the coming decades, policy, regulatory and

technological advancement, as well as market conditions

and other aspects of societal transitioning towards low-

carbon economies, are expected to affect the level of

transition and physical climate change risks. The pace of

these developments must be aligned with the time horizon

34 Using TCFD deﬁnition for litigation or legal risk.

35 IPCC 2018.

of the offered insurance coverage and line of business,

when considering how a climate change risk may impact

re/insurers. For example, with climate change already upon

us – e.g. mean global temperatures are elevated by 1-degree

Celsius compared to pre-industrial times, and sea-level rise

is already adversely impactingsome low-lying coastal areas

Table 1: An overview of physical and transition risks and relevant time horizons for re/insurers’ decision-making

Source: The Geneva Association

Physical risk Transition risk

• Can be driven by events or longer-term shifts in climate patterns.

• Currently a gradual change: small annual increments compounding over years with a low

probability of a sudden change

• May entail policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate

change.

Chronic risk

Acute risk

Policy risk

Litigation or

legal risk

Market risk Technological risk

Overview

• Progressive shifts in climate patterns, such

as sea-level rise and droughts; cascading

effects on food production, water security,

migration.

• Changes in the nature of extreme weather

events, such as wildﬁres, ﬂooding, storms.

• Includes policy efforts to

limit emissions or promote

climate-friendly adaptation.

• May arise from insureds’

causal contributions to

climate change or failure to

mitigate the impacts of or

adapt to climate change.

• May challenge insureds’

role in society (duty of care/

human rights cases) or force

a review of their projects or

technologies

• Includes the impact a

changing climate may have

on the supply and demand

of goods and services.

• Includes the potential for

new technology to disrupt or

displace existing systems.

Risk landscape over the

business-planning horizon:

2020–2030 (short term)

• The impacts are already present though the

rate of annual change is slow, e.g. mean

global temperatures are elevated by 1-degree

Celsius over pre-industrial levels, sea-level

rise is adversely affecting low lying coasts

today, etc.

• Attributing the role of climate change in

current extreme events is a difﬁcult, ongoing

subject of scientiﬁc study.

• For major perils, such as hurricanes, a

response to anthropogenic climate change

can be implied, but evidence of signal is

strongly masked by natural climate variability

and other man-made changes to the risk

landscape.

• For secondary perils like wildﬁre and local

ﬂooding, attribution is already much clearer.

• Due to slow gradual change, the climate

state of 2030 will not differ signiﬁcantly from

today.

• Public perception supports

meaningful near-term policy

action; however, action may

be inconsistent across the

globe and beneﬁts from

action may take time to

accrue but could have an

acute impact on investment

portfolios.

• Likely to increase due to

increases in the value of

losses and damages from

climate change; the scrutiny

of action, or inaction, to

address climate change;

cases that can be used as

precedent; substantial policy

change in this timeframe.

• Transportation and energy generation are among the markets

that will likely experience near-term impacts.

• Valuation of assets in investment portfolios may become more

volatile and/or experience pressure as carbon-intensive sectors

become less productive and/or viable.

Risk landscape over the

strategic-planning horizon:

2030–2050 (long term)

• Unmitigated, the negative impacts

are expected to increase signiﬁcantly,

including more and prolonged heat waves

and droughts, inundation of coastal real

estate, disrupted food production and water

scarcity, disruption of ecosystems and loss of

biodiversity, the spread of diseases and other

health impacts, geopolitical consequences.

• The severity and frequency of perils will

change, and in many areas of the world likely

increase, e.g. sea-level rise will worsen storm

surge risk and cyclone severity; increase in

the number and extent of wildﬁres and local

ﬂooding.

• The impact will be highly

dependent on the extent

of action taken in the short

term.

• Actions taken in the long

term would also take time

to accrue but could have

an acute impact on asset

portfolios.

• The extent of policy action

taken (or not) will likely

guide how the risk emerges

and evolves.

• Knock-on effects

of climate litigation against

governments could shift the

dial in certain jurisdictions

for corporate clients, directly

affecting the corporate

strategies, business models

and operational decision-

making of entire sectors.

• The impact will depend on the timing of transition for various

sectors and asset classes, which will be informed by all aspects

of transition risk (i.e. policy, legal, market, technological).

• In the absence of successful mitigation in the longer term, it

is likely that geoengineering solutions will be pursued, with

potentially unintended consequences.

Climate Change Risk Assessment for the Insurance Industry

– the insurance industry is monitoring where and by how

much the underlying risk landscape has already changed,

and to what extent these changes may affect their book of

business over the short term (2020–2030) and long term

(2030–2050).

When considering the potential effects of climate change

on longer-duration lines of business (e.g. mortality

protection, retirement savings), beyond understanding

the direct impact of climate change on physical risks

assumed through underwriting, it is important to

establish assumptions for societal progress in combating

climate change and how climate change may impact

other key drivers (e.g. economic growth, ﬁnancial market

performance). For example, climate change is not expected

to have a material impact on mortality or life insurance

coverage over the short term. However, it may become

more relevant over longer-time horizons (e.g. beyond

2050), especially when considered in parallel with the

effects it may have on health, economic growth, ﬁnancial

markets and certain asset classes. Furthermore, the

potential impact of prolonged exposure to more severe

Physical risk Transition risk

• Can be driven by events or longer-term shifts in climate patterns.

• Currently a gradual change: small annual increments compounding over years with a low

probability of a sudden change

• May entail policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate

change.

Chronic risk

Acute risk

Policy risk

Litigation or

legal risk

Market risk Technological risk

Overview

• Progressive shifts in climate patterns, such

as sea-level rise and droughts; cascading

effects on food production, water security,

migration.

• Changes in the nature of extreme weather

events, such as wildﬁres, ﬂooding, storms.

• Includes policy efforts to

limit emissions or promote

climate-friendly adaptation.

• May arise from insureds’

causal contributions to

climate change or failure to

mitigate the impacts of or

adapt to climate change.

• May challenge insureds’

role in society (duty of care/

human rights cases) or force

a review of their projects or

technologies

• Includes the impact a

changing climate may have

on the supply and demand

of goods and services.

• Includes the potential for

new technology to disrupt or

displace existing systems.

Risk landscape over the

business-planning horizon:

2020–2030 (short term)

• The impacts are already present though the

rate of annual change is slow, e.g. mean

global temperatures are elevated by 1-degree

Celsius over pre-industrial levels, sea-level

rise is adversely affecting low lying coasts

today, etc.

• Attributing the role of climate change in

current extreme events is a difﬁcult, ongoing

subject of scientiﬁc study.

• For major perils, such as hurricanes, a

response to anthropogenic climate change

can be implied, but evidence of signal is

strongly masked by natural climate variability

and other man-made changes to the risk

landscape.

• For secondary perils like wildﬁre and local

ﬂooding, attribution is already much clearer.

• Due to slow gradual change, the climate

state of 2030 will not differ signiﬁcantly from

today.

• Public perception supports

meaningful near-term policy

action; however, action may

be inconsistent across the

globe and beneﬁts from

action may take time to

accrue but could have an

acute impact on investment

portfolios.

• Likely to increase due to

increases in the value of

losses and damages from

climate change; the scrutiny

of action, or inaction, to

address climate change;

cases that can be used as

precedent; substantial policy

change in this timeframe.

• Transportation and energy generation are among the markets

that will likely experience near-term impacts.

• Valuation of assets in investment portfolios may become more

volatile and/or experience pressure as carbon-intensive sectors

become less productive and/or viable.

Risk landscape over the

strategic-planning horizon:

2030–2050 (long term)

• Unmitigated, the negative impacts

are expected to increase signiﬁcantly,

including more and prolonged heat waves

and droughts, inundation of coastal real

estate, disrupted food production and water

scarcity, disruption of ecosystems and loss of

biodiversity, the spread of diseases and other

health impacts, geopolitical consequences.

• The severity and frequency of perils will

change, and in many areas of the world likely

increase, e.g. sea-level rise will worsen storm

surge risk and cyclone severity; increase in

the number and extent of wildﬁres and local

ﬂooding.

• The impact will be highly

dependent on the extent

of action taken in the short

term.

• Actions taken in the long

term would also take time

to accrue but could have

an acute impact on asset

portfolios.

• The extent of policy action

taken (or not) will likely

guide how the risk emerges

and evolves.

• Knock-on effects

of climate litigation against

governments could shift the

dial in certain jurisdictions

for corporate clients, directly

affecting the corporate

strategies, business models

and operational decision-

making of entire sectors.

• The impact will depend on the timing of transition for various

sectors and asset classes, which will be informed by all aspects

of transition risk (i.e. policy, legal, market, technological).

• In the absence of successful mitigation in the longer term, it

is likely that geoengineering solutions will be pursued, with

potentially unintended consequences.

www.genevaassociation.org

events on life re/insurers and certain longer duration lines

of P&C re/insurance business must also be considered.

4.2 Implications of climate change risk for

P&C and life re/ insurers – Liability side

From the insurance industry’s perspective, climate

change is not a distinct risk. It is changing the

frequency and the severity of the risks that re/insurers

have covered for more than a century (e.g. coverage

for property damage, premature death) or have

assumed as part of their ALM practices (e.g. the risk of

credit defaults within their asset portfolios). In other

words, climate change is not a new risk class in the

risk assessment practices of re/insurers. It is a change

factor, whilst an important one, amongst many others,

affecting both the liability and investment sides of

the balance sheet. This section looks at physical and

transition risks for the liability side of P&C and life

re/insurers, respectively.

36 But not necessarily a worsening of proﬁtability, where premium goes at pace with the cost of risk.

37 For example this may result from a subsiding Gulf stream, linked to the changing ocean circulation caused by climate change.

Climate change is not a new risk

class in the risk assessment practices

of re/insurers. It is an important

change factor, amongst many others,

affecting both the liability and

investment side of the balance sheet.

P&C re/insurers

Table 2 further details the implications of climate change

risk (physical and transition risks) on P&C re/insurers’

liability decision-making over the two time horizons:

short to medium term (2020–2030) and long term

(2030–2050). For physical risks, in addition to direct risks

associated with changes in the frequency and severity

of extreme events (e.g. hurricanes, wildﬁres, storms),

considerations linked to a changing climate system's

tipping points (e.g. changing climate zones, changing

Table 2: Climate change risk and the decision landscape for P&C re/insurers – Liability side

Source: The Geneva Association

Physical risk Transition risk

Chronic risk

Acute risk

Policy risk Litigation risk Market risk Technological risk

Risk

landscape

over the

business-

planning

horizon:

2020–2030

(short term)

• Climate change alone is not yet impacting the insurability of NatCat risk, except for certain wildﬁre zones.

• Climate change is an additional modiﬁer of the well-known and successfully-managed natural catastrophe risk.

Thus, climate change is implicitly embedded in current pricing, risk management and claims experience.

• Limited data makes it difﬁcult to isolate what impact climate change will have versus other loss drivers, including

natural variability, and increasing and more concentrated asset values in high-risk zones like cities and coastal

areas.

• As the risk landscape is constantly evolving on multiple fronts, climate change included, a sustainable product

offering needs to address today's risk versus an outdated assessment.

• The impact would depend

on the timing and scope

of the policy to curb

carbon emissions.

• Signiﬁcant action

could limit the viability

of carbon-intensive

industries, impacting

associated Insurance lines

of business.

• The evolving legal and regulatory

environment and absence of court rulings

that establish principles for climate change-

related liability present a high degree of

uncertainty, particularly for D&O coverage.

• Professionals' duties of care for some

insureds could potentially lead to claims

related to physical and transition risks,

impacting professional indemnity/errors

and omissions (E&O) coverage.

• Market forces could

limit the viability of

some industries, limiting

associated insurance.

• Exposure through

reputational risk

(by association in

providing coverage to

certain companies and

industries).

• Progress in

carbon removal

and renewable

energy presents

opportunities;

however,

prototypical

technology is often

subject to volatility

in results.

Risk

landscape

over the

strategic-

planning

horizon:

2030–2050

(long term)

• Climate change effects will likely manifest in a worsening claims experience for weather-related perils, requiring

the industry to adjust its risk assessment and pricing dynamically and in a forward-looking mode (e.g. what used

to be a 1-in-200-years event might become a 1-in-100-years event).

• Insuring some risks/geographies will gradually become less affordable (e.g. home coverage in exposed coastal

areas) unless adaptation measures reduce risk levels and prevent new risks.

• The insurance business model will not be able to address risk with a certainty of loss, e.g. property on storm surge-

exposed coastlines or close to rivers. Insurability will require adaptation measures so that insurance covers the

random negative deviation from an expected outcome rather than the expected outcome.

• Secondary effects will be added; for example, a change or loss in biodiversity affects ecosystems and their natural

protection levels, or changed temperature regimes and access to water affect urban settlements, production and

supply chains, potentially leading to forced migration.

• While not the most likely outcome from a 2020 insights perspective, rapid intensiﬁcation of climate change and/

or exceeding tipping points

could have a dramatic impact on both chronic and acute risk, where risk adaptation

and mitigation become cornerstones to maintain insurability.

• Long-term impacts will align with those in the short term.

• Action will occur across all fronts – policy, legal, market and technological – but the potential impacts are difﬁcult to assess given

uncertainties regarding the timing, scope, etc. of change.

• Considering the inherent uncertainty and interconnection with physical risks, multiple pathways must be contemplated.

Climate Change Risk Assessment for the Insurance Industry

ocean circulation, impacts on trade winds, jet stream and

gulf stream) and a myriad of other indirect effects – such

as biodiversity loss – are also reﬂected. On the transition

risk side, the table highlights considerations for political,

litigation, market and technological risks related to

liability side.

Physical risk

P&C re/insurers have been successfully dealing with

extreme losses from natural catastrophes – speciﬁcally,

weather-related risks – for decades, using well-established

and proven risk management practices and governance.

While the link between anthropogenic climate change

and its broad effects on the frequency and severity of

weather-related perils (e.g. tropical cyclones, ﬂoods and

wildﬁres) has been established for some time now,

of today, despite ongoing progress with climate change

attribution science, the level of conﬁdence in scientiﬁc

results to explicitly attribute anthropogenic climate

change to speciﬁc changes in frequency and severity of

weather-related extreme events remains low. In other

words, further analysis, potentially over the next several

decades, is needed to better differentiate speciﬁc impacts

38 The Geneva Association 2018b.

39 IPCC 2014, 2018.

40 This remains a challenging question to quantify amongst all other changing human-driven socio-economic changes.

41 The Geneva Association 2018b, 2020a–f.

of anthropogenic climate change from natural climate

variability on characteristics of weather-related extremes,

from period to period.

Importantly, exposure and vulnerability factors, such

as population growth, urbanisation, an increasing

concentration of people and assets in high-risk zones (e.g.

along coastlines and ﬂood zones), development choices and

supply-chain disruptions (caused by extreme events) distort

and could mask any embedded climate change signal.

In the interim, P&C re/insurers view climate change as

a co-contributor in a rapidly changing risk landscape

alongside other risk drivers highlighted above. In such a

dynamically evolving risk landscape, the actuarial practice

of averaging the past to anticipate the future is not valid.

It is important to reiterate that the vast majority of P&C

re/insurance contracts are re/underwritten on an annual

basis. This makes it easy to adjust the pricing, terms and

conditions, and product offerings to progressive climate

change for the key portfolio on the liability side exposed

to physical climate change.