Analysts at Moody’s believe that a growing focus on climate change by global re/insurance regulators will ultimately be beneficial to the industry.
The rating agency suggested that closer regulatory scrutiny of climate risk will push re/insurers to better evaluate and monitor climate-related threats.
It is also expected to support re/insurers in making difficult choices in response to climate risks, such as reducing exposure to certain profitable but carbon-intensive sectors.
“Increased disclosure of climate-related risks will help insurers measure, benchmark and manage their exposure to climate risks,” says Brandan Holmes, VP-Sr Credit Officer at Moody’s Investors Service.
“It will also encourage them to consider climate risk and sustainability more rigorously in their investing and underwriting decisions, improving their overall risk management.”
European regulators in particular are increasingly expecting re/insurers to develop a processes to embed climate risk considerations within their strategies, and to have a plan to adapt their businesses to climate-related risks.
Some are even guiding firms to assign specific board-level responsibility for managing aspects of climate risk, Moody’s notes.
A number of regulators also require re/insurers to incorporate climate scenarios into their stress testing and scenario analysis.
Moody’s regards climate risk stress testing and scenario analysis as broadly positive, as they help insurers understand the consequences of climate change for their business.
