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

Market risk 
Credit risk 
Liquidity risk
• 
Financial market losses
• 
Credit market losses
Financial system 
contagion
Long-term
changes in
climate patterns
Economic impact and transmission channels
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Insurers are exposed to climate change both as 
underwriters and investors and could be affected 
by a variety of climate risks. The transmission 
channels represent how adverse climate-risk 
events could spread beyond the insurance 
sector and impact the wider financial system. 
Initial impacts on the financial system could also 
trigger reactions with other players within the 
financial system (including insurers) trying to 
mitigate the impact of the events on their balance 
sheet. These reactions could generate feedback 
loops within the financial system and, ultimately, 
through macroeconomic and social effects, the 
real economy. Not all climate risk-related events 
generate a significant impact or turn into systemic 
risks if they materialise but, through the channels 
described above, insurers could contribute to 
the generation or amplification of systemic risk 
induced by climate risk events. 
Though the potential financial stability impact 
of climate-related risks can be considered from 
different perspectives, the figure above focuses 
on the effect of both physical and transition 
risks, emphasising the latter, ie extensive policy, 
technology and market changes in favour of a low-
carbon economy on the asset side of the insurers’ 
balance sheet. 
Much of this section is based on the work of 
the FSB report (2020),
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which provides more 
information.