The PRA, next month, will ask UK insurers, as part of a market-wide insurance stress test, to consider how their businesses would be affected in different physical and transition risks scenarios.

In a speech today, Bank of England governor Mark Carney said “testing the banks, and possibly other participants in the financial system, with climate-change scenario stress tests would have two objectives: to consider whether, across the financial system, financing flows are consistent with an orderly transition to the climate outcome set out in the Paris agreement and to consider whether the financial system would be resilient to shorter-term shocks – including a climate “Minsky moment” when climate risks materialise suddenly.”

He added: “As the Bank of England considers the timing and design of such a stress test, we are working with colleagues in the Network for Greening the Financial System (NGFS) to develop a small number of high level scenarios.

“In our Climate Financial Risk Forum we will work with banks, insurers and asset managers to ensure these scenarios are rolled out effectively within their organisations. Together with our work on this year’s insurance survey, these initiatives will provide a basis for our future assessments of the system-wide exposure to climate risks.”

Share Story: