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

Policy and 
Regulation
Technological 
development
Consumer’s/
investors 
preferences
Physical risks
Exreme weather
Transition channels
Individual businesses/households
eg residential, corporate loans, credit insurance
Macroeconomic effects
Capital depreciation, productivity changes
Social effects
Labour market issues, socioeconomic conflicts, governments impacts
Exposure
Investment exposure
• Financial support to exposed sectors
• Decline in profitability
Counterparty exposure
• Concentration in asset holding
• Funding/lending 
• Stranded assets
Lower real estate values
Asset liquidation
• Large-scale sales
• Surrenders
(Liability risk)
• Limited financing for reconstruction 
• Increase in commodity prices
Impact on
insurance sector
Credit risk
• Creditworthiness
• Defaults
Market risk
• Assets devaluation
• Stranded assets
Liquidity risk
• Less liquid assets
• Refinancing risk
• Mass surrenders, securities 
lending, derivatives
Reputation risk
Procyclical behaviour
Credit market losses
• Transfer of losses to other 
market participants
• Mortgage loans and real 
estate portfolios
• Trade-credit insurance 
portfolios
Financial market losses
• Market imperfections
• Asset price volatility
• Interconnectedness of lending 
activities
• Constraining funding/liquidity 
to financial institutions
Feedback within the financial system
Feedback between 
climate and real economy
Feedback between 
real economy and 
financial system