The Bermuda Monetary Authority has issued explicit guidance notes detailing how it expects commercial insurers on the island to manage and report climate change risks. The notes include stating insurers must assess a policyholder’s climate risk exposure, as it relates to their capacity to provide coverage, as part of their underwriting risk assessment.
The requirements are to be phased in, beginning with year-end 2022 reports. The notes focus specifically on corporate governance and risk management practices for climate risk. The regulator said insurers are expected to take a proactive approach to manage and, where possible, mitigate the risks associated with climate change.
In explaining the purpose of the guidance notes, the regulator said: “Climate risk is a global issue and it is far-reaching in impacting the physical and macroeconomic environments in which insurers operate.
“Given the latitude of their implications and long-term nature, climate-related risks can become a significant financial risk to insurers and, as a result, the underlying stability of the financial sector.
“Therefore, robust management of climate risk is crucial to ensuring and maintaining the financial soundness and ongoing viability of the insurance sector in general, as well as insurers’ abilities to contribute to an orderly transition to a net-zero economy.”
In the section detailing underwriting risk, the regulator said that sectors with higher climate risk exposures should be further assessed. “In relation to physical risk, more frequent and severe natural catastrophe events can result in higher claims and underwriting losses for general business insurers. Higher claims inflation could be a secondary effect. Long-term insurers are also exposed to such climate risks, which may impact morbidity, mortality and longevity risks from products offered, thus further impacting reserving assumptions.”
The BMA added: “From year-end 2023 onwards, insurers are expected to carry out an overarching climate risk status assessment regarding the implementation of an appropriate framework that includes a clear action plan, inclusive of timelines and a prioritisation approach.”
Bermuda Monetary Authority (BMA), Commercial insurance, Cimate change risks, Insurance, Reinsurance, Bermuda