Report detailing analysis of climate risk exposure of insurers’ investments now available

(Sacramento, CA – Insurance News 360) – On Jan. 4, California Insurance Commissioner Dave Jones released the results of analysis of climate risk exposure faced by insurance industry investors. The climate risk scenario analysis, prepared for the Department by leading climate risk modeler 2° Investing Initiative, is the first of its kind to include analysis of both physical and transition risks faced by insurers assets.  An under 2 degrees Celsius scenario is also included in the analysis for the first time.

“This initiative shows that scenario analysis is an accessible tool for financial supervisors to monitor both physical and transition climate risks and support their regulated entities on managing these risks. It creates a blueprint that other financial supervisors can follow. Automated, scalable and technology driven solutions related to sustainability are ushering in an era of more cost effective supervision – both for supervisors and financial institutions,” said Jakob Thomae, Managing Director, 2° Investing Initiative.

The climate risk scenario reveals that insurer assets are exposed to climate-related transition risks with the possibility of fossil fuel investments becoming stranded assets and that  these assets face additional risks due to climate-related physical impacts. For example, investments in coal-powered utilities are significantly exposed to wildfires and that a number of other assets in which insurers invest could be adversely impacted by water scarcity.

“Insurers, like all investors, need to analyze and consider the climate change related risks facing their considerable investment portfolios,” said Insurance Commissioner Dave Jones. “While we are the first financial regulator to undertake an analysis of both climate-related physical risks and transition risks to insurer investments, we know that other financial regulators as well as investors are also moving forward to implement the important recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, including climate risk scenario analysis. I urge insurance companies to run multiple scenarios in assessing their investment and underwriting exposure to climate-related risk, especially in light of the recent UN Intergovernmental Panel on Climate Change and US National Climate Assessment reports and the adoption of an international Paris Agreement ‘rulebook’ at COP 24 all of which point to a transition away from burning fossil fuels. Climate-related physical risks such as wildfires are also becoming more pronounced, with implications for insurers as underwriters and investors.”

Source: California Insurance Department.

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