This supervisory statement (SS) is relevant to all UK insurance and reinsurance firms and groups, ie those within the scope of Solvency II including the Society of Lloyd’s and managing agents (‘Solvency II firms’) and non-Solvency II firms, (collectively referred to as ‘insurers’), banks, building societies, and Prudential Regulation Authority (PRA) designated investment firms (collectively referred to as ‘banks’). ‘Firms’ will be used to refer to both insurers and banks.
Climate change, and society’s response to it, present financial risks which are relevant to the PRA’s objectives. While the financial risks from climate change may crystallise in full over longer time horizons, they are also becoming apparent now.
The PRA’s reviews of current practice in the banking and insurance sectors have highlighted that, while firms are enhancing their approaches to managing the financial risks from climate change, few firms are taking a strategic approach that considers how actions today affect future financial risks.
Chapter 2 describes the two risk factors through which financial risks from climate change arise and the distinctive elements which, when considered together, present unique challenges and require a strategic approach.
Chapter 3 sets out the PRA’s expectations concerning this strategic approach.