April 2024
Regulatory expectations around climate-related financial risk continue to be a significant concern for insurers. There are already challenging requirements which form part of 'business as usual' supervisory cycles for the PRA and EIOPA. Regulatory policy in this area continues to be a topic for discussion and is expected to evolve as climate risk modelling approaches and insurers' capabilities mature.
SS3/19 (PDF 0.88MB), the PRA's Supervisory Statement on Enhancing banks' and insurers' approaches to managing the financial risks from climate change, is now five years old and the PRA has committed to updating it this year. Although the PRA was one of the first prudential regulators to set expectations on climate risk, it has arguably been overtaken by its European counterpart both in terms of granularity of expectations and on the climate capital debate. EIOPA is consulting (PDF 2.8MB) on the prudential treatment of sustainability risks, presenting numerous options for capital requirements that reflect the potentially higher risk profile of fossil-fuel related stocks and bonds. At a global level, the IAIS has just released the third paper in a four-part consultation on managing climate-related risk, and the FSB's 2024 workplan continues its work on coordinating international efforts to address climate-related financial risk.
Below, KPMG in the UK looks at ten areas where insurers are likely to see continued focus or new developments in 2024.