IAIS Study Estimates Insurers' Climate Risk Investment Exposure

A recently released report from the International Association of Insurance Supervisors (IAIS) found that 35 percent of insurers' invested assets are exposed to risks from climate change.

The data in the 2021 special topic edition of the IAIS Global Insurance Market Report (GIMAR) represented 75 percent of the global insurance sector, according to the IAIS.

"Climate change is the defining challenge for this generation. The GIMAR uses data from our wide membership in combination with analytical tools to understand how the insurance sector is exposed to climate risk," Vicky Saporta, IAIS Executive Committee chair, said in a statement. "The results highlight the benefits of pursuing an orderly transition toward internationally agreed climate targets to minimize the risks to solvency and financial stability."

The IAIS noted that climate change poses material risks to the economy and the financial sector, including the insurance sector. Climate changes are already leading to more extreme and frequent weather-related events, the IAIS said, thereby increasing the physical risks to which insurers are exposed. In addition, insurers will need to manage their investment exposures to assets and sectors most vulnerable to physical and transition risks.

The IAIS said that quantitative data analysis showed that "climate-relevant" assets within equities, corporate bonds, loans and mortgages, sovereign bonds, and real estate represent more than 35 percent of insurers' total assets. Within equities, corporate bonds and loans and mortgages, most climate-relevant assets relate to the housing and energy-intensive sectors, the IAIS said.

"This report underscores the importance for supervisors of assessing how climate change may affect the insurance sector and individual insurers and of developing an appropriate supervisory response," Jonathan Dixon, IAIS secretary general, said in the statement. "The IAIS is committed to deepening the breadth and scope of our contributions to helping insurance supervisors mitigate the effects of climate change."