The European Insurance and Occupational Pensions Authority (EIOPA) published, on Thursday 27 January, a document on the methodological principles of insurance stress tests which focuses on the climate change component.
The paper presents methodological principles that can be used to design stress testing exercises to assess insurers’ vulnerability to climate risks. It focuses on two types of risk: - physical risk arising from exposure to extreme weather events (drought, flooding); - the risk associated with the process of adjusting the economy to achieve climate neutrality by 2050.
Climate change stress tests can already raise awareness of climate-related risks, understand how insurers assess these risks, improve risk management capabilities and assess the potential impact on other parts of the financial sector and on the real economy.
Although the emergence of climate risks is relatively recent compared to other specific insurance and financial risks, their consideration has quickly become a priority for policymakers and supervisors, the EIOPA points out.
To see the EIOPA’s document: https://bit.ly/3rTESOZ (Original version in French by Anne Damiani)