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25 février 2021

Climate Change Risk Assessment for the Insurance Industry

A holistic decision-making framework and key considerations for both sides of the balance sheet

Original Content: The Geneva Association

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 insurance 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.

This report is the work of the Geneva Association’s Task Force on Climate Change Risk Assessment, which aims to advance and accelerate the development of holistic methodologies and tools for conducting climate risk assessment and scenario analysis. The report includes the contributions of both the Climate Change & Emerging Environmental Topics Working Group and the Public Policy & Regulation Working Group, on which sit members from AXA Group.

Madeleine Sophie Deroche

Head of Natural Perils R&D and Model Governance at AXA Group Risk Management

As insurers, we play an important role in understanding, modelling and preventing climate risks.  The decision-making framework put forward in this report can help to design and carry out internally climate risk assessments while considering key factors like relevant time horizons as well as physical and transition risks. Although work still needs to be done across the industry, collectively engaging stakeholders through this Task Force and Working Group is a big step towards market-wide forward-looking scenarios.

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