Stakeholder Letter - Insurance - Management of Climate Change Risks for Commercial Insurers Guidance Note (2023-03-09)

Summary

This is a stakeholder letter from the Bermuda Monetary Authority summarising industry feedback received on its August 2022 consultation paper for the Guidance Note: Management of Climate Change Risks for Commercial Insurers, and explaining the resulting changes to that Guidance Note. It clarifies how key concepts (proportionality, materiality, double materiality, board expertise, governance) will apply and sets out revised timing expectations for climate risk integration into CISSA/GSSA (ORSA) reporting.

• Proportionality: The proportionality principle applies throughout the Guidance Note, with application depending on an insurer's nature, scale, complexity, risk profile and materiality assessment of climate risk.
• Year end 2022 reporting: Given the 2022 CISSA/GSSA process was largely complete, the BMA will accept a best effort summary report covering an overview of climate risk exposures and approach, 2023 priorities, and an outlook toward an action plan meeting requirements by 2025.
• From year end 2023: Insurers are expected to carry out a fuller, overarching climate risk status assessment in CISSA/GSSA, including a clear action plan with timelines and prioritisation.
• Materiality and double materiality: A new dedicated section (Sections 10 to 13) requires materiality assessment as the starting point for analysing climate risk exposure, and insurers should also consider double materiality (their own impact on climate change) focusing initially on reputational and strategic risks.
• Board expertise: The board should have sufficient knowledge to assess climate related financial risks, and responsibility for climate risk management should rest with one accountable individual, akin to a Chief Risk Officer role.
• Bye law amendment removed: The prior requirement to amend board bye laws has been removed and replaced with a requirement for updated policies, procedures or Terms of Reference.
• Escalation procedures: Separate climate specific escalation policies are not required, but any variation from an insurer's general risk escalation procedures must be highlighted (Section 39).
• Review frequency: The previous annual review requirement for climate risk governance and strategy (Section 48) has been replaced with a requirement for regular review.
• Standalone climate policy not mandatory: A separate climate change risk policy is not required where climate risk is adequately captured in existing policies (e.g. underwriting, investment), provided all material aspects are covered and the chosen approach is outlined (Section 9).
• Group versus entity application: Subsidiaries may apply group level climate change risk management frameworks at entity level, provided the Guidance Note's principles are adhered to.

The letter itself does not create new standalone legal obligations but documents finalised revisions to the Guidance Note that commercial insurers registered in Bermuda are expected to follow, particularly regarding CISSA/GSSA reporting timelines and governance expectations.

Key obligations

• For year end 2022 CISSA/GSSA reporting, provide on a best effort basis a summary covering the insurer's climate risk exposures and approach, 2023 priorities, and an outlook toward an action plan meeting requirements by 2025
• From year end 2023 onwards, carry out an overarching climate risk status assessment in CISSA/GSSA reporting, including a clear action plan with timelines and a prioritisation approach
• Ensure the board has sufficient knowledge to understand and assess financial risks stemming from climate change risk factors
• Assign responsibility for climate risk management to one accountable individual within the organisation
• Replace any bye law based climate governance provisions with updated policies, procedures or Terms of Reference
• Highlight any variation between climate risk escalation procedures and general risk escalation procedures (Section 39)
• Conduct regular (rather than strictly annual) review of climate risk governance and strategy (Section 48)
• Where no standalone climate risk policy exists, ensure all material climate change risk aspects are covered within existing policies and outline the chosen approach (Section 9)
• Perform a materiality assessment, including consideration of double materiality, as the starting point for analysing exposure to climate change risks (Sections 10 to 13)

Applies to

commercial insurers, insurance groups, registrants

Deadlines

• year-end 2022: Best effort summary report on climate change risk exposures, 2023 priorities and outlook to be included in CISSA/GSSA (ORSA) reporting
• year-end 2023 onwards: Insurers expected to carry out a fuller, overarching climate risk status assessment with action plan and timelines integrated into CISSA/GSSA reporting
• 2025: Insurers expected to have an action plan implemented to meet the Guidance Note's climate change risk management requirements