Exposures to climate-related assets among global insurers’ investments ‘remain significant’

Written by Adam Cadle

06/12/2023

Exposures to climate-related assets among global insurers’ investments “remain significant”, the IAIS has said, with the figure estimated at 37% of reported assets.

The IAIS’s 2023 Global Insurance Market Report (GIMAR) showed that within the equity, corporate bonds, loans and mortgages portfolios of insurers, the share of assets that are most exposed to transition risks range between 29% (in Europe and Africa) and 42% (in Latin America), with the North America and Asia and Oceania regions in between.

“This shows that insurers continue to allocate material shares of their portfolios to the six climate-relevant sectors – and that exposure to transition risk persists,” the IAIS stated.

“One of the main physical risks of climate change for insurers is the expected increase in claims related to NatCat events. Setting risk-based capital requirements for NatCat risk can ensure that capital resources are appropriately allocated to cover this risk. The majority of survey responses from supervisory authorities indicated that capital requirements for NatCat risks are already in place in their jurisdictions, while two members indicated that they plan to introduce such requirements in the near future. The NatCat data received from individual insurers was used to estimate the impact of extreme weather events on insurers’ capital levels. Immediately following a 1-in-200-year event, insurers’ capital coverage ratios could decline by 34% on average. This could create a significant capital management challenge if it becomes difficult for insurers to quickly raise capital, disrupting reinsurance markets and thereby reducing reinsurance capacity.”

The IAIS said that current levels of capital within the global insurance market remain sound, with the aggregate solvency ratio for insurers participating in the 2023 Global Monitoring Exercise (GME) remaining well above 100%, yet slightly declining at year-end 2022 compared to year-end 2021.

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