Climate change leapfrogging Brexit as key risk for insurance industry

Written by Adam Cadle

24/09/2020

Climate change is leapfrogging Brexit as a key risk for the insurance industry, latest research has shown.

LCP’s analysis of Solvency II reporting from the top 100 UK and Ireland non-life insurers showed that 49% of firms think that climate change is a key risk, a significant increase from last year when only 13% of firms thought this was a priority.

Just 42% consider Brexit as a key risk, compared with 65% last year. The majority of firms (65%) said they expect to be able to continue to meet regulatory capital requirements in the wake of the COVID-19 pandemic, with the remaining 35% either silent or saying that there was still too much uncertainty to confirm the position.

LCP said insurers continue to be generally sufficiently capitalised, with eligible own funds that are, on average, more than double their Solvency Capital Requirement (SCR).

Commenting on the analysis, Cat Drummond, partner at LCP, said: “While our report  shows insurers’ financial strength has continued to improve each year since 2016, the impact of COVID-19 threatens to set this back, and the full impact on firms may not be understood for many years to come.

“With the PRA recently indicating that there are significant gaps in the industry’s capability to evaluate climate-related scenarios it is perhaps no surprise that climate change has leapfrogged Brexit as a key industry risk. However, with the end of the transition period looming  we expect Brexit to remain high on board agendas for a number of firms over the next year.”

The insurers analysed held a combined total of £175bn in investments at 2019 year end, which is the same as at the 2018 year end. The total amount held in cash, however, decreased from £7.5bn at 2018 year end to £6.3bn at 2019 year end. In aggregrate, 61% of assets were held in either government or corporate bonds. This is a slight decrease from 63% at 2018 year end. The aggregate allocation of assets in cash and deposits has also decreased slightly, from 6.3% at 2018 year end to 5.6% at 2019 year end.

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