Following initial stakeholder consultation, the Central Bank of Ireland published its paper “Guidance for (Re)insurance undertakings on Climate Change Risk.”
The below article introduces seven overarching principles and key expectations that all Irish-domiciled (re)insurers are expected to consider.
1. Appropriate climate risk governance frameworks should ensure that The Board and senior management identify, understand and document the risk that climate change poses to the insurer. Remuneration policies are expected to be aligned with climate objectives and strategy. 2. Insurers are expected to conduct regular materiality assessments A baseline climate scenario should be defined. Scenario analysis around the baseline should be conducted to understand short, medium, and long-term climate change risk exposures. 3. The ORSA should play a central role in climate risk management An appropriate number of stresses and scenarios must be designed in response to material climate exposures. Interconnectedness of risks should be explored and tested. There should be clear and effective communication of ORSA results, expert judgments, management actions and key uncertainties. An iterative approach is expected with increasing sophistication over time. 4. Climate change risk should be thoroughly considered in the business model and strategy Adaptation and mitigation plans should be in place in response to short, medium, and long-term climate changes. Implementation plans must be supported by well-defined and measurable targets. 5. Risk appetite statements are required to Clearly reflect the overall climate strategy and exposure limits. Include well-defined metrics covering the short, medium, and long term. 6. Climate risk management needs to be fully integrated into the existing risk management framework Risk policies should be aligned with the risk appetite for climate change risk. Risk reporting mechanisms should be in place to measure actual exposures against stated appetite. 7. More generally, climate risk considerations must be engrained into business critical activities Calculation of the Technical Provisions. Capital management and modelling. Underwriting and pricing activity. Investment decision-making. Outward reinsurance strategy.
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