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BMA Commences Climate Risk Management Expectations For Insurers

BMA Commences Climate Risk Management Expectations For Insurers

BMA Commences Climate Risk Management Expectations For Insurers

BMA Commences Climate Risk Management Expectations For Insurers

The Bermuda Monetary Authority (BMA) has issued a new guidance note on the management of climate risk for commercial insurers.

The BMA’s requirements for commercial insurers and insurance groups with relation to the management and reporting of climate change risks are laid out in the guidance note. In the framework of Environmental, Social, and Governance (ESG) hazards of insurance business undertaken by such insurers, a focus on corporate governance and risk management methods for climate risk.

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The BMA expects insurers to demonstrate continuous improvement throughout the implementation phase, which could last up to three years. This progress should be documented in the annual Own Risk and Solvency Assessment, which will be checked by the BMA through off-site data analysis and on-site inspections.

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BMA Commences Climate Risk Management Expectations For Insurers

Risks associated with climate change may have an effect on insurers’ operations, investments, and underwriting processes, which may directly affect their capacity to fulfill policyholder responsibilities.

The BMA will keep an eye on insurers to see if they’ve evaluated credit risk and counterparty risk exposures in regard to climate threats, including both affiliated and unaffiliated ties, as well as the impact on their statutory capital and surplus.

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In order to ensure that exposures are completely managed, insurers are expected to start monitoring the biggest counterparty exposures. The memo advises that this should also involve a review of the current investment portfolio and reinsurance program.

It is important to evaluate the major reinsurers’ caliber. A review of risk mitigation strategies for climate risk exposures is necessary, and it may include things like more reinsurance coverage, cutting-edge analytics, alternative risk transfer for reinsurance, and investments that set restrictions or lessen exposure to specific organizations.

BMA Commences Climate Risk Management Expectations For Insurers

In some instances, insurers may consider engaging, via their investment manager, with certain entities to assess plans and track record in preparing to adapt to climate change or transition.

Policies and procedures should be adopted to monitor counterparty risks and to manage the impact on the insurance business. The BMA expects that enhanced due diligence for higher risks should also be implemented, such as the use of external ratings, counterparty reporting etc.

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The BMA expect insurers to ensure their governance structure and governance processes embed a forward-looking, prudent, and responsible approach to handling all aspects of climate risks.

Additionally, the BMA acknowledges that risks resulting from climate change are still evolving, therefore, requests for insurers to continuously evaluate their operations considering the risks and the control mechanisms implemented to assess them, to affirm that they continue to be relevant and operate effectively


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