Gimar special topic edition the impact of climate change on the financial stability of the insurance sector

38
Graph 17:
Impact of scenarios on solvency
289%
283%
248%
297%
100%
150%
200%
250%
300%
350%
Total sample
Too little, too late Disorderly Transition Orderly Transition Pre stress level (YE 2019)
Source: IAIS data collections and own calculations 
Graph 18:
Contribution of asset classes to the overall shock (TCDC sample)
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
Orderly transition
Disorderly transition
Too little, too late
Lo
ss 
in %
of
t
otal
asse
ts
Equity
Corporate debt
Loans and mortgages
Sovereign bonds
Real estate
The results below provide several important 
insights. First, averaging across all geographic 
areas, insurers appear sufficiently capitalised to 
face various magnitudes of transition risk. The 
risk presented by a disorderly transition amounts 
to slightly less than 15% of capital requirements 
of the full sample, while on average insurers are 
capitalised at almost 300% of this level. When 
expressed in terms of total assets, the impact of a 
disorderly transition remains below 1% (Graph 16). 
The integration of the physical risk component 
in the worst-case “too little, too late” scenario 
significantly magnified the losses. Nonetheless, 
despite the significant impacts when both types 
of climate-related risks manifest simultaneously, 
these results suggest that the insurance sector as 
a whole remains capable of facing even a severe 
climate-related shock to its investment portfolio, 
with an estimated impact of 3% of total assets 
(Graph 16) and almost 50% of required capital 
(Graph 17). This finding also holds at regional 
levels, with post-stress solvency ratios remaining 
well above the minimum prescribed capital 
requirement of 100% in all regions, although 
these high-level findings may hide possible 
concentrations in exposures at the individual 
insurer level.
Finally, Graph 18 reports the total impact of the 
scenarios on the insurance sector, broken down by 
asset class. On average for the total sample, these 
results show that equities – while less present than 
corporate or sovereign bonds in insurers’ portfolios 
– account for the largest share of the losses for the
sample as a whole.
Source: IAIS data collections and own calculations 

---