The European Insurance and Occupational Pensions Authority (EIOPA) has published an opinion on the use of climate change risk scenarios in insurance undertakings’ Own Risk and Solvency Assessment (ORSA). The opinion has been written to help supervisory authorities understand EIOPA’s expectations in terms of climate risk scenarios included in the ORSA.
Solvency II requires that insurance undertakings take into account in their ORSA all the short and long terms risks to which they could be exposed. The European Commission has published proposed changes to the Solvency II Delegated Regulation ((EU) 2015/35) which will introduce sustainability risks into the framework of risks that insurance undertakings must monitor, measure and manage. EIOPA has previously published an opinion on sustainability within Solvency II which considers the need to consider climate risks beyond a one year time horizon. Following a survey of ORSAs undertaken by national competent authorities EIOPA found that no more than 13% of undertakings were currently capturing climate risk in their ORSA. EIOPA now considers it essential for insurance undertakings to capture and manage climate risks as part of their governance arrangements.
The opinion sets out clear expectations for national competent authorities to include climate risks in undertakings’ ORSA. Expectations are provided in the opinion as to the different scenarios that should be considered and the time horizons over which risks should be measured.
Undertakings should review the expectations in the knowledge that the requirements will be introduced in their jurisdiction in due course. Where undertakings are not already considering climate risks in their ORSA, they should use the opinion to help plan towards requirements to do so.