Insurance Stress Testing on Climate Change

<p>Operational risk (A)</p> Signup and view all the answers

<p>Liquidity risk (D)</p> Signup and view all the answers

<p>Transitional market risk (D)</p> Signup and view all the answers

<p>Underwriting risk (D)</p> Signup and view all the answers

<p>Market risk (A)</p> Signup and view all the answers

<p>Both A and C (D)</p> Signup and view all the answers

<p>Increased adaptation costs (C)</p> Signup and view all the answers

<p>Direct losses to certain sectors (B)</p> Signup and view all the answers

<p>Mitigate transition costs (B)</p> Signup and view all the answers

<p>Variable impacts on sectors (D)</p> Signup and view all the answers

<p>Increased long-term adaptation costs (A)</p> Signup and view all the answers

<p>They complicate accurate predictions (A)</p> Signup and view all the answers

<p>Reduce transition costs (D)</p> Signup and view all the answers

<p>The speed and timing of policy impacts (D)</p> Signup and view all the answers

<p>Sector-specific damage (C)</p> Signup and view all the answers

<p>Short to medium term (D)</p> Signup and view all the answers

<p>Gradual warming is medium to long term while transition risks are short to medium term (A)</p> Signup and view all the answers

<p>Anticipated shocks to financial and non-financial assets (C)</p> Signup and view all the answers

<p>Unanticipated shocks and stranded assets (C)</p> Signup and view all the answers

<p>No reactive management actions and fixed asset values (B)</p> Signup and view all the answers

<p>Inconsistent valuation and potential overestimation of risks (A)</p> Signup and view all the answers

<p>Extreme climate events (B)</p> Signup and view all the answers

<p>They incorporate reactive management actions. (B)</p> Signup and view all the answers

<p>It may result in non-linear impacts on climate change extremes. (B)</p> Signup and view all the answers

<p>They assume instantaneous shocks to the balance sheet at specific intervals. (A)</p> Signup and view all the answers

<p>Management actions to be considered at various intervals. (B)</p> Signup and view all the answers

<p>They have reduced comparability across different intervals. (B)</p> Signup and view all the answers

<p>It increases the computational burden for model assessments. (B)</p> Signup and view all the answers

<p>Actions taken in direct response to occurring scenarios. (B)</p> Signup and view all the answers

<p>Immediate effects of climate shocks at reference dates. (C)</p> Signup and view all the answers

<p>Highly complex with many response intervals. (C)</p> Signup and view all the answers

<p>They can overstate impacts if not carefully implemented. (B)</p> Signup and view all the answers

<p>It adds additional scenario specifications and complexities. (D)</p> Signup and view all the answers

<p>To determine required transformations given potential climate scenarios. (A)</p> Signup and view all the answers

<p>Reactive management actions in response to climate change-related risks. (B)</p> Signup and view all the answers

<p>Global population growth. (D)</p> Signup and view all the answers

<p>Interest rates (RFR). (A)</p> Signup and view all the answers

<p>Transition risk. (D)</p> Signup and view all the answers

<p>Changes in financial market stability. (D)</p> Signup and view all the answers

<p>Commodity and energy prices. (D)</p> Signup and view all the answers

<p>Interest rates including risk-free rates. (D)</p> Signup and view all the answers

<p>Governance and strategy frameworks. (A)</p> Signup and view all the answers

<p>Mortality/morbidity parameters. (D)</p> Signup and view all the answers

<p>No additional policy action is taken beyond announcements. (A)</p> Signup and view all the answers

<p>Allows for comparison against similar studies. (C)</p> Signup and view all the answers

<p>Uncertainty regarding model calibration affects outcomes. (B)</p> Signup and view all the answers

<p>It's less detailed but simplifies the specifications. (B)</p> Signup and view all the answers

<p>Greater flexibility in assessment and potential inconsistency. (B)</p> Signup and view all the answers

<p>It encourages a deeper examination of risk exposures. (B)</p> Signup and view all the answers

<p>It encourages firms to enhance their modelling capacity. (D)</p> Signup and view all the answers

<p>There is no widely accepted methodology for such estimates. (A)</p> Signup and view all the answers

<p>Requires extensive mapping of portfolios to activities. (C)</p> Signup and view all the answers

<p>Translating climate factors into financial impacts can be complex. (D)</p> Signup and view all the answers

<p>They fail to distinguish impacts across economic sectors. (A)</p> Signup and view all the answers

<p>It necessitates extensive risk management competencies. (C)</p> Signup and view all the answers

<p>They force firms to engage in extensive risk assessments. (D)</p> Signup and view all the answers

Risks to the stability of the financial system due to climate change.

Indirect effects of climate change on the economy, beyond the initial damage.

The degree to which a country or business can adjust to climate change.

The ability of a country or business to adjust to climate change.

Costs associated with adjusting to a low-carbon economy.

Climate change effects that are not proportional to the cause.

Actions taken by governments to address climate change.

Processes where one change leads to further changes, often in a cyclical way in economics.

Physical or economic harm caused by climate events.

Broad ways climate change impacts the overall economy.

Higher-than-expected insurance claims on damaged insured assets.

Higher-than-expected mortality or morbidity rates.

Impairment of asset values due to financial losses impacting firm profitability.

Deteriorating creditworthiness of borrowers impacting the value of assets.

Impairment of financial asset values due to low-carbon transitions, e.g., stranded assets.

Disruptions to insurance activities and assets, like damage to property.

Unexpected higher payouts during economic downturns.

Equity price shocks and bond price/yield shocks.

Actions taken by businesses in response to climate change scenarios, beyond the baseline plan.

A gradual increase in global temperatures over time.

Making sure the chosen reactive measures are reasonable and likely to be effective in addressing a climate change scenario.

Making sure the chosen reactive measures fit with the overall climate change scenario and the baseline plan.

Constraints on the effectiveness of reactive management due to factors like slow response times, limited resources, or unforeseen consequences.

Regular intervals within a climate change scenario, like every year or every five years, used to evaluate impacts and implement reactive actions.

A specific point in time used as a starting point for evaluating impacts and enacting reactive management actions.

Sudden and significant events within a climate change scenario that impact the balance sheet immediately.

A balance sheet that can change and adapt in response to climate change scenarios and reactive management actions.

Direct impacts of climate change, like extreme weather events.

Risks arising from the shift to a low-carbon economy.

A climate change scenario with high physical and transition risks, where no policy action was taken.

The level of detail in climate change scenarios for stress testing.

A method of stress testing where firms assess their own risks related to climate.

A high-level description of a climate change scenario.

Variables related to climate change like temperature or precipitation changes.

Macroeconomic variables like GDP and inflation and their impact on climate risk.

Different impacts of climate change on different economic sectors.

Climate change's unique impact on each company based on their operations.

The most granular level of assessment of climate impacts.

The aim of keeping global warming minimal to prevent dangerous climate change.

Evaluating a company's ability to cope with severe events or conditions.

The level of grouping economic data for analysis.

The level of detail in data or analysis.

Analyzing the long-term financial consequences of climate change risks on a business's current operations and balance sheet.

The extent of changes needed in a company's operations and business model to adapt to a specific climate scenario.

How companies integrate climate change-related considerations into their decision-making, plans, risk management frameworks, aims, and goals.

A comprehensive analysis of the financial impact of climate change on a company, including both physical and transition risks.

Climate-related events and changes affecting a company, including temperature changes, extreme weather, and sea level rise.

Factors related to the shift towards a low-carbon economy, including emission pathways, carbon pricing, and energy transition policies.

Climate change's effect on the overall economy, including GDP growth, inflation, and interest rates.

Climate change's influence on financial instruments, such as government and corporate bonds, equity indices, and commodity prices.

The role of reinsurance companies in managing climate risks, with a focus on their influence on the overall impact assessment.

Climate change risks that directly affect physical assets, such as buildings, infrastructure, and natural resources.

Climate change risks related to the shift toward a low-carbon economy, such as policy changes, technological advancements, and shifting consumer preferences.

Sudden and severe weather events caused by climate change, such as floods, droughts, hurricanes, and heatwaves.

Assets that become worthless or less valuable due to the transition to a low-carbon economy.

A balance sheet that doesn't change in response to climate change scenarios, assuming no reactive management actions are taken.