Guidance Note - Insurance - Management of Climate Change Risks for Commercial Insurers

Summary

This is a Bermuda Monetary Authority guidance note setting out expectations for how commercial insurers and insurance groups should identify, govern and manage climate change risk. It is not a binding rule but describes minimum standards the BMA expects to see reflected in governance frameworks, risk management practices and CISSA/ORSA filings, applied proportionately to each insurer's nature, scale, complexity and materiality of climate exposure.

• Materiality assessment: Insurers should conduct and regularly repeat a forward looking materiality assessment of climate risk exposure, retain evidence for risks assessed as not material, and also consider double materiality (their own impact on climate change).
• Corporate governance: The board must have clearly documented responsibility for climate risk, sufficient knowledge to oversee it, defined roles for board and senior executives, a climate specific reporting and escalation regime, and training or access to external expertise where needed.
• Risk management framework: Climate risk must be embedded into the insurer's ERM framework, including a defined risk appetite, identification and assessment methods, and consideration across underwriting, investment/market, credit, operational, reputational, strategic and legal/litigation risk categories.
• Scenario analysis and stress testing: Insurers should incorporate qualitative (and increasingly quantitative) climate scenario analysis and sensitivity testing covering physical and transition risks over short, medium and long-term horizons, with results and methodology described in the CISSA.
• CISSA/ORSA reporting: Insurers must document climate risk identification, management and reporting processes in their CISSA, including a status assessment, action plan with timelines, and annual updates on implementation progress.

The BMA phases in expectations: an initial best-effort overview was expected from year-end 2022 CISSA/ORSA filings, followed by fuller status assessments and action plans from year-end 2023, with a complete, fully operational climate risk framework expected by year-end 2025. The Authority will monitor progress through offsite analysis and on-site visits from 2023 onwards.

Key obligations

• Insurers must provide, on a best effort basis starting with their year-end 2022 ORSA/CISSA, an initial overarching view of climate change risk exposures, approaches to tackling them, and priorities for 2023.
• From year-end 2023 onwards, insurers must carry out an overarching climate risk status assessment in their CISSA, including a clear action plan with timelines and prioritisation.
• Insurers must have an appropriate climate risk framework and measures fully adopted and operational on or before year-end 2025.
• Insurers should regularly conduct and repeat a materiality assessment of climate change risk exposure and retain evidence of the assessment, particularly for risks deemed not material.
• The board must have clearly documented responsibilities for managing climate change risk and must ensure sufficient knowledge to assess related financial risks.
• Insurers must establish and implement a climate risk specific reporting regime that escalates issues from the legal entity level up to senior executives and the board.
• Insurers must embed climate risk into their ERM framework, including a defined risk appetite, identification and assessment processes, and escalation and reporting measures.
• Insurers are expected to incorporate climate risk scenario analysis and sensitivity testing covering material physical and transition risks, and describe the rationale for selected scenarios in the CISSA.
• The Authority recommends insurers include annual updates on climate action plan implementation progress in the CISSA.

Applies to

commercial insurers (classes 3A, 3B, 4, C, D and E), insurance groups

Deadlines

• year-end 2022 ORSA/CISSA: Insurers expected to provide, on a best-effort basis, an initial overarching view of climate change risk exposures and priorities for 2023.
• year-end 2023: Insurers expected to carry out an overarching climate risk status assessment with a clear action plan, timelines and prioritisation; BMA monitoring via offsite analysis and on-site visits begins.
• year-end 2025: Climate risk framework and measures to be fully adopted and operational by this date.
• annual basis: Recommended annual updates on action plan implementation progress to be included in the CISSA.