Insurance Supervisors and Global Stability
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Questions and Answers

What may lead to negative publicity for insurers regarding climate change?

  • Engagement in insurance tech innovations
  • Insurers investing in renewable energy projects
  • Improvement in insurance affordability
  • Insurers underwriting sectors perceived as contributing to climate change (correct)

    • Which factor can contribute to strategic challenges for insurers related to climate risk?

  • Stable weather patterns
  • Social movements advocating for fossil fuel divestment
  • Increased insurance premiums in a stable market
  • Uncertainty about future climate scenarios (correct)

    • What is a potential consequence of not accounting for climate change in underwriting?

  • Increased likelihood of profit margins
  • Lower claim frequency
  • Enhanced market stability for underwriting policies
  • Underestimating the risk exposure (correct)

    • Which type of risk is most associated with weather-related insurance claims due to climate change?

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

    What is the primary purpose of developing scenario analysis and stress testing in relation to climate change?

    <p>To identify financial risks to the business model.</p> Signup and view all the answers

    Which type of tools should be developed to monitor exposure to financial risks from climate change?

    <p>Both quantitative and qualitative tools are needed.</p> Signup and view all the answers

    How might insurers' actions in response to climate risk affect their reputation?

    <p>By withdrawing coverage and raising prices for specific sectors</p> Signup and view all the answers

    What does ICP 16 primarily focus on regarding insurers?

    <p>Supervisory expectations for coordinating risk management.</p> Signup and view all the answers

    Which element is critical for an effective system of insurance supervision in relation to climate risks?

    <p>Sufficient preconditions in place</p> Signup and view all the answers

    How should climate-related risks be integrated according to ICP 16?

    <p>In underwriting policy and processes.</p> Signup and view all the answers

    What is a potential risk associated with liability policies in the context of climate change?

    <p>Prudential impacts stemming from underwriting risks</p> Signup and view all the answers

    What could be a possible reaction from social movements regarding insurers and climate change?

    <p>Demanding divestment from fossil fuels</p> Signup and view all the answers

    What is the role of stress testing in the Own Risk and Solvency Assessment (ORSA)?

    <p>To assess impacts of climate-related risks.</p> Signup and view all the answers

    What should supervisors expect insurers to do concerning climate change risks in their portfolios?

    <p>Assess the implications for underwriting and develop appropriate policies.</p> Signup and view all the answers

    What are physical, transition, and liability risks associated with?

    <p>Climate change.</p> Signup and view all the answers

    What entity establishes the standards for integrating climate risks in insurers' frameworks according to the content?

    <p>Supervisory organizations based on ICP standards.</p> Signup and view all the answers

    What does the assessment of physical risks include?

    <p>Use of catastrophe modelling for various events</p> Signup and view all the answers

    What types of risks are included in the reverse stress testing process for insurers?

    <p>Physical, transition, and liability risks</p> Signup and view all the answers

    Why is it important for insurers to understand the models used for climate risk assessment?

    <p>To grasp the uncertainties and assumptions of the results</p> Signup and view all the answers

    How might transition risks impact insurers?

    <p>Through changes in carbon taxes and strict regulations</p> Signup and view all the answers

    What documentation is required if an insurer assesses climate-related risks as immaterial?

    <p>Document the reason for the immaterial assessment</p> Signup and view all the answers

    What might liability risks encompass for insurers?

    <p>Potential changes in societal and judicial environments</p> Signup and view all the answers

    What is a potential outcome of assessing a climate-related risk scenario that causes insolvency?

    <p>Increased focus on catastrophe modelling</p> Signup and view all the answers

    Which models are encouraged for insurers to use regarding climate-related stress testing?

    <p>Models pertinent to their geographical and business scope</p> Signup and view all the answers

    What is one focus of stress testing conducted by certain IAIGs in Canada over the past two years?

    <p>Climate risk scenarios affecting asset portfolios</p> Signup and view all the answers

    What aspects must insurers assess regarding climate change in the 2020 ORSA Supervisory Report according to the Financial Supervisory Commission in Chinese Taipei?

    <p>Physical, transition, and liability risks</p> Signup and view all the answers

    What will the pilot project involving the Bank of Canada and OSFI help assess?

    <p>Risks of climate change scenarios to the financial system</p> Signup and view all the answers

    Which type of risk is NOT mentioned as a requirement for insurers to disclose in their ORSA Supervisory Report in Chinese Taipei?

    <p>Market risk associated with stock investments</p> Signup and view all the answers

    What major addition has the Financial Supervisory Commission incorporated into the stress test scenarios?

    <p>Climate change scenarios with losses related to typhoons</p> Signup and view all the answers

    Which organization is involved in enhancing understanding of climate-related risks alongside the Bank of Canada?

    <p>Office of the Superintendent of Financial Institutions (OSFI)</p> Signup and view all the answers

    What is a key requirement for insurers in their ORSA Supervisory Report as indicated by the FSC in Chinese Taipei?

    <p>Response strategies for risk management</p> Signup and view all the answers

    What does the 'first-order impact' of climate risk refer to in Canada's stress testing?

    <p>Losses in physical assets from climate events</p> Signup and view all the answers

    What is the primary mission of the International Association of Insurance Supervisors (IAIS)?

    <p>To promote effective and consistent supervision of the insurance industry.</p> Signup and view all the answers

    When was the International Association of Insurance Supervisors (IAIS) established?

    <p>1994</p> Signup and view all the answers

    Which organization serves as the Secretariat for the Sustainable Insurance Forum (SIF)?

    <p>United Nations Development Programme (UNDP)</p> Signup and view all the answers

    How many jurisdictions were members of the Sustainable Insurance Forum (SIF) as of May 2021?

    <p>31</p> Signup and view all the answers

    What is the main purpose of Application Papers?

    <p>To provide further advice and examples of good practices</p> Signup and view all the answers

    What role does the IAIS play in relation to the Financial Stability Board (FSB)?

    <p>It coordinates its work with the FSB.</p> Signup and view all the answers

    What is the long-term vision of the Sustainable Insurance Forum (SIF)?

    <p>To integrate sustainability factors into regulation and supervision of insurance companies.</p> Signup and view all the answers

    In which section is the concept of proportionality discussed?

    <p>Introduction</p> Signup and view all the answers

    What type of papers does the IAIS produce to support specific supervisory material?

    <p>Application Papers</p> Signup and view all the answers

    What should supervisors focus on according to the role of supervisors section?

    <p>Supporting sustainable practices</p> Signup and view all the answers

    What is a key consideration in risk management regarding climate-related risks?

    <p>Integrating them into the risk management system</p> Signup and view all the answers

    Which of the following is NOT a focus area for the Sustainable Insurance Forum (SIF)?

    <p>Strengthening governance in financial institutions</p> Signup and view all the answers

    Which function is specifically noted for its role related to climate-related risks?

    <p>Internal audit function</p> Signup and view all the answers

    Which section addresses the monitoring of underwriting exposure to climate-related risks?

    <p>Enterprise Risk Management</p> Signup and view all the answers

    What is the focus of the section on Public Disclosure?

    <p>General disclosure requirements and profiles</p> Signup and view all the answers

    What does climate-related risk integration into outsourcing decisions aim to achieve?

    <p>Mitigating potential climate-related impacts</p> Signup and view all the answers

    Which acronym stands for Enterprise Risk Management?

    <p>ERM</p> Signup and view all the answers

    Which body is associated with international insurance supervisor activities?

    <p>International Association of Insurance Supervisors</p> Signup and view all the answers

    Which of the following is a recommended practice for senior management?

    <p>Ensure corporate governance responsibilities are clear</p> Signup and view all the answers

    What is the role of the Board in corporate governance?

    <p>To provide oversight and strategic guidance</p> Signup and view all the answers

    What does stress testing in the context of risk management help assess?

    <p>Climatic impacts on financial stability</p> Signup and view all the answers

    Which of the following represents a challenge in the interpretation of supervisory materials?

    <p>Varying practical applications and interpretations</p> Signup and view all the answers

    What is expected of financial institutions regarding sustainability risks in the near future?

    <p>To further define and consult on managing them</p> Signup and view all the answers

    Which section focuses on the specific legislation for managing climate and environmental risks?

    <p>Legislative framework and applicability</p> Signup and view all the answers

    What do the sector-specific tabs provide in relation to climate and environmental risks?

    <p>Potential impacts of climate risks by sector</p> Signup and view all the answers

    Which area is NOT covered by the focal points for integrated climate risk management?

    <p>Market analysis</p> Signup and view all the answers

    What type of institutions currently have good practices included in the guide?

    <p>Pension funds and insurers</p> Signup and view all the answers

    What is the objective of the tools in the guide regarding climate and environmental risk management?

    <p>To inspire integrated risk management across sectors</p> Signup and view all the answers

    What key aspect of climate and environmental risk management is highlighted in the guide?

    <p>Integration into core operational processes</p> Signup and view all the answers

    What does the guide periodically supplement with new insights and examples?

    <p>Sustainability risk management practices</p> Signup and view all the answers

    What is one of the key components of the Action Plan for Financing Sustainable Growth?

    <p>EU Taxonomy for Sustainable Economic Activities</p> Signup and view all the answers

    What does the Sustainable Finance Disclosure Regulation (SFDR) specifically address?

    <p>Sustainability disclosure requirements for financial participants</p> Signup and view all the answers

    What must institutions analyze to determine the materiality of climate and environmental risks?

    <p>The characteristics of their business model</p> Signup and view all the answers

    What approach is recommended for institutions when managing climate and environmental risks?

    <p>A proportionate and risk-based approach tailored to their size and risk materiality</p> Signup and view all the answers

    Which directive includes reporting requirements for large companies on ESG aspects?

    <p>Corporate Sustainability Reporting Directive (CSRD)</p> Signup and view all the answers

    What is the intended role of the good practices outlined in the Guide by the European Commission?

    <p>To facilitate supervisory dialogue on climate risk management</p> Signup and view all the answers

    How should smaller institutions approach climate risk management according to the guidance?

    <p>Using a qualitative and less detailed approach</p> Signup and view all the answers

    What is the function of the European Financial Reporting Advisory Group (EFRAG) in relation to the CSRD?

    <p>To develop standards for sustainability reporting</p> Signup and view all the answers

    What needs to be regularly assessed to manage climate and environmental risks effectively?

    <p>The adequacy of resources, expertise, and skills</p> Signup and view all the answers

    How can institutions encourage behaviors that align with their climate and environmental targets?

    <p>By aligning remuneration policies with their climate strategy</p> Signup and view all the answers

    What is the initial step when conducting scenario analyses for climate-related risks?

    <p>Define goal</p> Signup and view all the answers

    What is the purpose of including climate and environmental risks in an institution's risk appetite?

    <p>To define acceptable risk levels in achieving strategic goals</p> Signup and view all the answers

    In scenario analyses, what type of scenario is NOT recommended for assessing long-term climate risks?

    <p>Single temperature increase scenario</p> Signup and view all the answers

    What analysis should be conducted to determine which environmental risks are material?

    <p>Materiality analysis</p> Signup and view all the answers

    What is a significant benefit of using stress tests in assessing climate risks?

    <p>They help identify potential capital requirements.</p> Signup and view all the answers

    Which of the following is NOT a type of scenario that should be used when conducting scenario analyses?

    <p>Historical</p> Signup and view all the answers

    What type of risks should institutions examine in relation to climate and environmental factors?

    <p>All material and other risks including future exposures</p> Signup and view all the answers

    What does aligning remuneration policies with climate strategy aim to achieve?

    <p>To foster behaviors supportive of climate goals</p> Signup and view all the answers

    What is an essential characteristic of the assumptions made during scenario analyses?

    <p>They must align with recognized third-party guidelines.</p> Signup and view all the answers

    What is a key component of a risk management cycle in relation to climate risks?

    <p>Defining clear climate-related risk categories in risk appetite</p> Signup and view all the answers

    What is one of the major outputs of conducting business impact analyses in relation to climate risks?

    <p>Resilience of critical processes</p> Signup and view all the answers

    What two types of scenario analyses are identified for testing the resilience of a business model?

    <p>Exploratory and quantitative</p> Signup and view all the answers

    What should institutions consider when formulating their risk appetite regarding climate risks?

    <p>Potential future scenarios and risk impacts over time</p> Signup and view all the answers

    What role do scenario analyses provide for strategic planning?

    <p>They offer insights for decision-making.</p> Signup and view all the answers

    Which of the following is a characteristic of physical risk factors associated with climate change?

    <p>They result from extreme climate events.</p> Signup and view all the answers

    What can long delays in transitioning to a lower-carbon economy result in?

    <p>Greater physical and transition risks</p> Signup and view all the answers

    Which of the following does NOT represent an example of environmental degradation?

    <p>Transition to renewable energy</p> Signup and view all the answers

    Systemic risks arise from which of the following situations?

    <p>The collapse of an ecosystem affecting multiple sectors</p> Signup and view all the answers

    What type of risks include acute physical events like storms and floods?

    <p>Physical risks</p> Signup and view all the answers

    What can be considered a transition risk factor?

    <p>Regulatory changes promoting sustainable practices</p> Signup and view all the answers

    Which phenomenon can lead to both physical and transition risks for financial institutions?

    <p>Environmental disasters and policy delays</p> Signup and view all the answers

    Why is it critical for insurers to manage climate risks effectively?

    <p>To enhance their public image and market sentiment</p> Signup and view all the answers

    What is the primary effect of chronic physical risk factors on financial institutions?

    <p>And the potential for capital destruction and asset impairment</p> Signup and view all the answers

    Which of the following is an example of transition risk factors?

    <p>Emergence of electric vehicles and renewable energy</p> Signup and view all the answers

    What type of risk can result from changes in climate and environmental policies?

    <p>Market risk through unpredictable commodity pricing</p> Signup and view all the answers

    How might consumer behavior impact financial institutions in relation to climate risks?

    <p>Shifts toward sustainable products and services</p> Signup and view all the answers

    Which of the following describes a characteristic of financial transmission channels?

    <p>They connect physical and transition risks to financial risks</p> Signup and view all the answers

    What financial risk can arise from disruption to production processes due to physical risks?

    <p>Market risk from losses on bonds</p> Signup and view all the answers

    Which risk type poses challenges regarding liability claims due to climate change?

    <p>Underwriting risk leading to heightened claims costs</p> Signup and view all the answers

    What occurs as a result of more volatile commodity prices due to climate risks?

    <p>Increased operational costs for insurers</p> Signup and view all the answers

    Which of the following risks is directly associated with the shift to renewable energy technologies?

    <p>Strategic risk linked to legacy systems</p> Signup and view all the answers

    Which scenario illustrates the connection between climate risks and the financial system?

    <p>Growing public sentiment against environmentally harmful practices</p> Signup and view all the answers

    What type of risk involves the possibility of higher than expected insurance claims due to physical harm to insured assets?

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

    Which type of risk is primarily associated with impairment of asset values due to financial losses affecting a company's profitability?

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

    What risk is specifically related to the deteriorating creditworthiness of borrowers affected by changes in the economic environment?

    <p>Credit risk</p> Signup and view all the answers

    Which risk is characterized by disruptions in an insurer's activities related to damage to its own property?

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

    What risk arises from unexpected higher payouts due to economic deterioration affecting insurance operations?

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

    Which type of risk is linked to the negative impact of low-carbon transitions on financial asset values?

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

    What specific market risk example is highlighted as a concern for insurers related to equity prices?

    <p>Equity price shock</p> Signup and view all the answers

    What risk is described as stemming from the potential impacts of climate change on borrowers and investment values?

    <p>Credit risk</p> Signup and view all the answers

    What consequence might arise from a bond price/yield shock?

    <p>Increased credit risk due to borrower losses</p> Signup and view all the answers

    How can climate change impact underwriting risk?

    <p>By increasing expectations for environmental claims</p> Signup and view all the answers

    What type of risk is most associated with accountability for environmental damages?

    <p>Legal liability risk</p> Signup and view all the answers

    What element should be defined to initiate a climate change stress test exercise?

    <p>Specific stress test objective</p> Signup and view all the answers

    Which factor could potentially lead to an overall decrease in underwriting business?

    <p>Increased insurance premiums due to claims</p> Signup and view all the answers

    In the context of climate change, what is a critical aspect of insurers' liabilities?

    <p>Climate change-related settlements</p> Signup and view all the answers

    What common misconception could occur regarding the impact of climate change on credit risk?

    <p>Credit risk increases for those ignoring transition risks</p> Signup and view all the answers

    Which of the following describes a potential outcome of not addressing transition risk?

    <p>Increased insurance claims payouts</p> Signup and view all the answers

    What type of risk is characterized by unanticipated shocks to physical assets within a short to medium term?

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

    In which time frame are the anticipated shocks to financial and non-financial assets primarily experienced due to gradual warming?

    <p>Medium to long term</p> Signup and view all the answers

    What aspect may require a higher granularity when evaluating climate risks for specific sectors?

    <p>Technology used in energy production</p> Signup and view all the answers

    What is the potential long-term financial impact of unanticipated shocks due to transition risk?

    <p>Profitability decline in climate-sensitive sectors</p> Signup and view all the answers

    What distinguishes dynamic balance sheets from static balance sheets in the context of climate-related financial risk?

    <p>Dynamic balance sheets include reactive management actions.</p> Signup and view all the answers

    Which type of risk, described within the content, involves potential stranded assets due to sudden changes?

    <p>Transition risk</p> Signup and view all the answers

    What is an important consideration when modeling climate-related perils on a regional level?

    <p>Intra-country regional factors</p> Signup and view all the answers

    Which scenario corresponds to shocks anticipated to affect financial assets due to gradual warming?

    <p>Long-term profitability impacts</p> Signup and view all the answers

    What is a primary advantage of using a fixed balance sheet approach?

    <p>It enhances comparability across different time frames.</p> Signup and view all the answers

    What is a major drawback of dynamic balance sheets in modeling?

    <p>They can reduce comparability between scenarios.</p> Signup and view all the answers

    Which scenario approach allows for instantaneous shocks to the balance sheet?

    <p>Both fixed and dynamic balance sheet approaches.</p> Signup and view all the answers

    In the context of balance sheet modeling, what does reactive management imply?

    <p>Implementing immediate changes to address current scenarios.</p> Signup and view all the answers

    What is a consequence of using a fixed balance sheet approach for climate scenario modeling?

    <p>It does not consider the potential ongoing changes over time.</p> Signup and view all the answers

    Why might the use of dynamic balance sheets complicate comparability?

    <p>They include varied management responses that can differ significantly.</p> Signup and view all the answers

    What does a fixed balance sheet primarily base its assessment on?

    <p>A snapshot at a specific reference date.</p> Signup and view all the answers

    What type of management actions are specifically distinguished in relation to dynamic balance sheets?

    <p>Embedded management actions.</p> Signup and view all the answers

    What does the Probable Maximum Loss (PML) indicate?

    <p>The value of the largest loss likely to occur from an event.</p> Signup and view all the answers

    What does the concept of Annual Average Loss (AAL) represent?

    <p>The average losses from property damage experienced by a portfolio per year.</p> Signup and view all the answers

    What does the term '1 in X years' indicate in the context of Return Period?

    <p>The average time between extreme events.</p> Signup and view all the answers

    What is meant by Annual Exceedance Probability (AEP)?

    <p>The probability that an event of a specified magnitude occurs in a year.</p> Signup and view all the answers

    What type of loss does the concept of gross losses primarily refer to?

    <p>Total losses before any deductions or adjustments.</p> Signup and view all the answers

    In the context of Assessing Annual Average Loss (AAL), the term 'Only physical' implies what?

    <p>A focus solely on tangible property and physical assets.</p> Signup and view all the answers

    What does the Return Period illustrate in terms of extreme events?

    <p>It indicates how often events of a certain magnitude are expected to be exceeded.</p> Signup and view all the answers

    What does an increased Return Period signify about an extreme weather event?

    Signup and view all the answers

    What is a significant outcome of a scenario with insufficient policy transition actions?

    <p>Heightened physical risks</p> Signup and view all the answers

    Which granularity level in scenario specifications promotes risk awareness at the counterparty level?

    <p>Firm</p> Signup and view all the answers

    What is a disadvantage of using broad economic factors in climate scenario modeling?

    <p>They do not distinguish between economic sectors</p> Signup and view all the answers

    What is a challenge faced when specifying impacts at the activity level in scenario analysis?

    <p>Requires extensive mapping of activities</p> Signup and view all the answers

    Which level of scenario granularity is least likely to provide consistency and comparability across firms?

    <p>Sectoral</p> Signup and view all the answers

    What does the aggregation level in scenario testing primarily enhance?

    <p>Simplification and clarity</p> Signup and view all the answers

    Which characteristic of sectoral granularity may lead to limitations in impact estimation?

    <p>Does not account for firm heterogeneity</p> Signup and view all the answers

    What is a common disadvantage when using firm-level granularity in climate scenario analysis?

    <p>Requires incomplete underlying data</p> Signup and view all the answers

    What does the specification of climate factors require from firms in scenario modeling?

    <p>Translation of climate impacts into financial consequences</p> Signup and view all the answers

    What is a key drawback of flexibility in modeling for scenario analysis?

    <p>Reduces overall modeling consistency</p> Signup and view all the answers

    What does sectoral granularity enable regarding economic sectors?

    <p>Clarity about implications across various sectors</p> Signup and view all the answers

    What could be a primary limitation of relying on broad economic factors for climate scenario modeling?

    <p>Lacks precision in predicting sector-specific impacts</p> Signup and view all the answers

    How does firm-level granularity affect risk management practices?

    <p>Promotes risk awareness among stakeholders</p> Signup and view all the answers

    Which granularity level requires understanding and extensive mapping of a firm's specific activities for analysis?

    <p>Activity</p> Signup and view all the answers

    What does an Annual Average Loss (AAL) represent?

    <p>Average losses from property damage over a specified period.</p> Signup and view all the answers

    What does an event with a '1-in-100 year return period' imply?

    <p>There is a 1% chance it exceeds a certain magnitude in any given year.</p> Signup and view all the answers

    The term 'Annual Probability of Exceedance' (AEP) refers to what?

    <p>The chance of an event occurring in a year of a specified magnitude.</p> Signup and view all the answers

    What is the focus of the Return Period of Gross Losses?

    <p>To identify the frequency of extreme events expected.</p> Signup and view all the answers

    Which statement about transitional risks is accurate?

    <p>They can affect the transition towards a low-carbon economy.</p> Signup and view all the answers

    What is a key aspect of assessing 'Second-round effects'?

    <p>Potential future scenarios based on current risk assessments.</p> Signup and view all the answers

    What is indicated by a higher AEP in climate risk assessments?

    <p>Higher likelihood of extreme weather events occurring.</p> Signup and view all the answers

    What is the primary calculation method that ignores reinsurance treaties when assessing financial impact?

    <p>Impact calculated gross of reinsurance</p> Signup and view all the answers

    Which indicator is specifically associated only with transition risks?

    <p>Stressed value or price change for identified assets</p> Signup and view all the answers

    For the evaluation of physical risks, what aspect pertains to liability?

    <p>Change in best estimate assumptions</p> Signup and view all the answers

    What must be addressed in the evaluation of transition risks?

    <p>Shocks to prices or yields in related asset classes</p> Signup and view all the answers

    Which of the following metrics reflects the change in financial standing due to both physical and transition risks?

    <p>Excess of Asset over Liabilities (change of)</p> Signup and view all the answers

    What type of risk is characterized by higher than expected mortality or morbidity rates?

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

    Which risk is primarily associated with disruptions affecting the value of financial assets due to climate change?

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

    Which type of risk does NOT account for climate-related considerations in its evaluation?

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

    Which risk type includes the possibility of deteriorating creditworthiness of borrowers due to financial losses?

    <p>Credit risk</p> Signup and view all the answers

    What is a specific example of market risk illustrated in the context provided?

    <p>Bond price shock</p> Signup and view all the answers

    What type of risk encompasses the impairment of asset values caused by stranded assets during a transition period?

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

    Which of the following risks is associated with unexpected higher payouts and broader economic deterioration?

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

    Which risk type involves damage to the insurer's own assets or property?

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

    Which factor may lead to a deterioration in the creditworthiness of borrowers in the context of climate change?

    <p>Ineffective management of transition risk</p> Signup and view all the answers

    What could potentially trigger an increase in insurance prices related to underwriting risk?

    <p>Higher than expected claims on non-life insurance</p> Signup and view all the answers

    Which type of risk may become more prominent for insurers due to environmental damages?

    <p>Legal liability risk</p> Signup and view all the answers

    In a climate change stress test, what is considered a critical first step?

    <p>Defining specific stress testing objectives</p> Signup and view all the answers

    Which of the following factors is NOT associated with underwriting risk in the context of climate change?

    <p>Investments in carbon-neutral technologies</p> Signup and view all the answers

    What aspect should insurers particularly consider when managing legal and reputational risks related to climate change?

    <p>The adequacy of environmental reporting standards</p> Signup and view all the answers

    What is a potential outcome for insurers that do not adequately address transition risks?

    <p>Losses in credit ratings</p> Signup and view all the answers

    Which of the following best describes a key focus of stress testing in relation to climate risk?

    <p>Assessing the effects of extreme climate-related scenarios</p> Signup and view all the answers

    What is a significant factor that determines the extent of warming in climate change scenarios?

    <p>Macroeconomic transition dynamics</p> Signup and view all the answers

    Which principle best describes the objective of integrating ESG risk assessments into the regulatory framework?

    <p>Integrating risks for better supervision</p> Signup and view all the answers

    Which entity is responsible for the regulatory supervision framework related to insurers' climate risk?

    <p>European Insurance and Occupational Pensions Authority</p> Signup and view all the answers

    What does the term 'technical provisions' refer to in the context of climate risk assessment?

    <p>Estimates of future payouts for claims</p> Signup and view all the answers

    What is indicated as a necessary component during the Own Risk and Solvency Assessment (ORSA) related to climate risks?

    <p>Inclusion of stress testing results</p> Signup and view all the answers

    Which provides a measure of financial stability in the context of climate-related transition risks?

    <p>Speed of macroeconomic transition</p> Signup and view all the answers

    What type of risks does the assessment of climate-related financial risks primarily focus on?

    <p>Physical, transition, and liability risks</p> Signup and view all the answers

    What is the role of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS)?

    <p>Promoting sustainable finance initiatives</p> Signup and view all the answers

    Which indicator is specifically associated with the assessment of overall losses in physical risk categories?

    <p>Loss Ratio</p> Signup and view all the answers

    What type of indicators is primarily focused on showing the impact of climate change on average losses?

    <p>Technical Indicators</p> Signup and view all the answers

    In assessing the impact on an insurer’s profit and loss, which type of risks does this consider?

    <p>Physical and transition risks</p> Signup and view all the answers

    Which type of losses does the term 'tail losses' refer to in the context of technical indicators?

    <p>Extreme losses in unlikely events</p> Signup and view all the answers

    What is the basis for the calculation of losses termed 'total assets subject to'?

    <p>Transition risks only</p> Signup and view all the answers

    Which category of indicators specifically relates to ensuring technical results for non-life insurers?

    <p>Impact on the firm’s technical result</p> Signup and view all the answers

    For life insurers, which of the following indicators can be split to analyze technical results?

    <p>Overall impact on profit and loss</p> Signup and view all the answers

    Which of these options could be excluded from calculating technical provisions in a specific scenario?

    <p>Impact of mortality/morbidity changes</p> Signup and view all the answers

    What are the primary focuses of climate change stress tests for individual (re)insurers?

    <p>Assessing vulnerabilities and potential financial exposures</p> Signup and view all the answers

    Which principle emphasizes the assessment of both transition and physical risks in climate change scenarios?

    <p>Integration principle of risk assessments</p> Signup and view all the answers

    What is a macroprudential objective of climate change stress testing?

    <p>Evaluating potential spill-overs to other financial sectors</p> Signup and view all the answers

    What aspect should be included when developing climate scenario narratives?

    <p>Incorporate specified time horizons and granularity</p> Signup and view all the answers

    What does the assessment of climate-related financial impacts require?

    <p>Flexibility to adapt based on changing conditions</p> Signup and view all the answers

    Which of the following best describes the role of scenario specifications in climate risk assessment?

    <p>They define how risks may affect business models</p> Signup and view all the answers

    In climate change risk assessments, what is meant by 'potential protection gaps'?

    <p>Lack of coverage options for all climate-related risks</p> Signup and view all the answers

    What is essential for enhancing risk management capabilities regarding climate change?

    <p>Integrating diverse perspectives on climate risks</p> Signup and view all the answers

    What key challenge does scenario design face in the context of climate change?

    <p>Wide range of possible future climate paths</p> Signup and view all the answers

    Which factor is critical in assessing the resilience of (re)insurers in climate change scenarios?

    <p>Examining the comprehensive impacts of various climate risks</p> Signup and view all the answers

    Study Notes

    International Association of Insurance Supervisors (IAIS)

    • The IAIS is a voluntary membership organization of insurance supervisors and regulators.
    • Its mission is to promote effective and globally consistent insurance supervision.
    • The IAIS aims for fair, safe, and stable insurance markets, benefiting policyholders and contributing to global financial stability.
    • It was established in 1994.
    • The IAIS coordinates with other international financial policymakers and associations.
    • It shapes financial systems globally.
    • It is a member of the FSB and the IASB.
    • It partners with the Access to Insurance Initiative (A2ii).
    • It regularly provides input on insurance matters and global financial sector regulation to G20 leaders and other international standard-setting bodies.

    Sustainable Insurance Forum (SIF)

    • The SIF is a leadership group of insurance supervisors and regulators working on sustainability issues.
    • Its goal is to strengthen understanding and responses to sustainability issues in the insurance sector.
    • The SIF aims to establish a global insurance system that integrates sustainability factors into regulation and supervision.
    • The UNDP serves as its Secretariat.
    • The SIF works closely with the IAIS.
    • It has 31 member jurisdictions as of May 2021.

    Application Papers

    • Application Papers support specific supervisory material.
    • They are guidelines on applying principles and standards in different situations.
    • They offer examples of good practice for supervisors.
    • They do not create new requirements.
    • The proportionality principle applies to Application Papers' content.

    Contents and Structure of the Application Paper

    • The paper provides an introduction and context, along with background information and work related to the SIF and IAIS.
    • It covers proportionality, terminology (definitions of terms related to climate change, etc.), the supervisor's role, and corporate governance.
    • It discusses risk management, internal controls, and the integration of climate-related risks into risk management systems.
    • It details the role and responsibilities of senior management.
    • It focuses on consideration of climate-related risks by different functions, such as the actuarial function, compliance function, and internal audit function.
    • The paper also covers investments, public disclosures, and Enterprise Risk Management for Solvency Purposes, including underwriting policy and the monitoring of climate-related risks within the underwriting assessment.
    • It includes stress testing and scenario analysis related to climate-related risks.

    Climate Change Impacts on Insurance

    • Climate change is recognized as a major global threat.
    • It impacts human, societal, environmental, and economic systems.
    • Climate change and the response to it (GHG emissions reduction, adaptation) affect the global economy and financial system.
    • Climate change is a source of financial risk for insurers.
    • Climate change impacts insurability of policyholder property and assets, as well as insurance operations and investments.
    • Climate change creates opportunities for insurers to contribute to climate risk management and resilience.
    • Climate risk-based pricing from insurers provides economic signals regarding the changing risk environment.
    • Insurance can play a critical role in climate risk management through assessment, management, and carriage of risk as well as investment.
    • Potential impacts from climate change include investment risks, liquidity risks, and operational risks.
    • Climate change can impact the value of investment portfolios and expose the insurance sector to both physical and transition risks.
    • A lack of reliable and comparable climate-related information may create uncertainty and market dynamics.
    • Climate change impacts may affect insurer assets, including property, equipment, IT systems, and personnel, increasing cost and affecting claim management.

    Role/Responsibility/Supervisory Considerations

    • Supervisors should identify, monitor, assess and contribute to climate risk mitigation.
    • Supervisors must assess the extent of climate-related risks to related economies and financial systems.
    • Supervisors should establish mechanisms for effective responses and mitigation strategies.
    • Supervisors are expected to include climate-related risks in the own risk and solvency assessment (ORSA) process and stress testing.

    Other Key Notes

    • Implementation of the recommendations from the 2018 and 2020 Issues Papers are discussed.
    • Proportionality in supervisory processes should be observed.
    • The document provides examples of supervisory practice in ORSA and stress testing in different jurisdictions (Canada, Chinese Taipei, and the Netherlands), highlighting best practices, models, and considerations taken by supervisory bodies
    • The supervisor's role includes ensuring adequate resources, frameworks, and appropriate risk management strategies to address climate-related risks.

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    Related Documents

    Application Paper on the Supervision of Climate-Related Risks in the Insurance Sector PDF
    Guide to managing climate and environmental risks 2023 PDF
    Methodological Principles of Insurance Stress Testing – Climate Change Component PDF

    Description

    Explore the role of the International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum (SIF) in promoting effective insurance supervision. This quiz delves into their missions, goals, and collaborations in the realm of global financial stability and sustainability. Test your knowledge on these pivotal organizations established to shape the future of insurance markets.

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