Climate Change Risks in the Insurance Busines: A Regulatory Overview on Transition Risk Methodologies

Climate change, from a financial perspective, poses a new challenge for insurers, risk managers and regulators. Its impacts are subject to uncertainty, since they may not be immediate, and since they depend on governments’ actions. This sparked financial institutions' and regulators’ interest to anticipate these risks, given the potential losses arising from early impairments in investment portfolios, and further losses deriving from adapting to a transition in the medium term. For what concerns the transition risk, i.e. the risk that stems from a transition to a carbonless society, the current Insurance European regulatory guidelines suggest four methodologies to estimate it. This thesis introduces climate change risks and the potential disruption for insurance business, and it then illustrates the current European regulatory framework. Eventually, it compares the models suggested and discusses the current framework on transition risk modelling.