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Climate Change

Climate Change

Financial Risks from Climate Change

We live in a complex world in which crises proliferate and magnify risks to our financial system. Climate change is increasing the frequency and intensity of extreme weather events, resulting in property damage, business disruption, and the devaluation of investments and other assets. To continue to thrive in the face of global competition, it is essential that New York financial institutions integrate consideration of the financial risks from climate change into their governance frameworks, risk management processes, and business strategies and start developing their approach to climate-related financial disclosure.

Because of the importance of this issue, DFS has joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), a group of central bankers and supervisors committed to managing financial risks from climate change globally, and the Sustainable Insurance Forum (SIF), an international network of insurance supervisors dedicated to helping the global insurance industry meet the challenges posed by climate change. DFS intends to continue engaging with all stakeholders to develop expert guidance in this critical area.

We commend those who have already made significant progress and we will support others as they embark on this journey. The challenge ahead is great, but we know from experience that together we can meet it. Mitigating the financial risks from climate change is a critical component of creating a stronger industry and a healthier and safer world for ourselves, our families, and future generations. There is no more time to wait. Let’s get to work. - Linda A. Lacewell, New York State Superintendent of Financial Services

Industry Guidance

On September 22, 2020, DFS issued Circular Letter No. 15 (2020) to all New York-regulated domestic and foreign insurance companies outlining its expectations related to addressing the financial risks from climate change.

On October 29, 2020, DFS issued an Industry Letter outlining its expectations related to addressing the financial risks from climate change to all New York-regulated banking organizations, branches and agencies of foreign banking organizations, mortgage bankers and servicers, and limited purpose trust companies, as well as New York-regulated non-depositories (other than New York-regulated mortgage bankers, mortgage servicers, and limited purpose trust companies), including New York regulated money transmitters, licensed lenders, sales finance companies, premium finance agencies, and virtual currency companies.

FAQs about Insurance Circular Letter No. 15 (2020)

To which insurers does Insurance Circular Letter No. 15 (2020) apply?

The Circular Letter is addressed to all New York domestic and authorized foreign insurers. DFS believes that addressing the financial risks from climate change is critical to the solvency and liquidity of the insurance industry. DFS’s oversight over domestic and authorized foreign insurers, however, is not identical. As noted in the Circular Letter, DFS will provide further guidance in the coming months and welcomes the industry’s input in this process.

Does DFS plan to issue new regulations pertaining to its climate-related supervisory activities?

DFS does not currently plan to issue new regulations pertaining to its climate-related supervisory activities, with the exception of Insurance Regulation 203, which we are proposing to amend to include climate change as one of the reasonably foreseeable and relevant material risks to be addressed by insurers’ enterprise risk management function.

What is DFS’s timeline with respect to the expectations set forth in the Circular Letter?

Although the timeline is still being finalized, DFS plans to:

  • Launch the global knowledge exchange seminar series on climate change at the end of 2020, with sessions scheduled to take place through the first quarter of 2021;

  • Issue proposed detailed guidance on insurers’ approaches to managing the financial risks from climate change in the first quarter of 2021 and provide 90 days for public comment;

  • Organize an industry round table to gather feedback on the proposed guidance and, after incorporating the feedback, issue the detailed guidance in the third quarter of 2021; and

  • Analyze the financial risk exposure to New York domestic insurers’ assets from climate change.

As stated in the Circular Letter, questions pertaining to an insurer’s approach and activities related to the financial risks from climate change will be integrated into DFS’s examination process starting in 2021. To prepare for these exams, insurers will start receiving information requests related to climate in their First Day Letters in December 2020.

Does the reference to “insurers’ assets” in the Circular Letter apply to mutual funds managed by insurers?

No. The reference to “insurers’ assets” in the Circular Letter does not apply to mutual funds managed by insurers.

May the designation of a board member or board committee as accountable for the insurer’s assessment and management of the financial risks from climate change be done at the holding company level (and satisfy the requirement for the group as a whole) or must it be done at the insurer level?

It may be done at either the holding company level or the insurer level.

What are DFS’s plans with respect to stress testing?

DFS is still developing its approach to stress testing and will seek input from industry and other interested parties prior to issuing additional guidance.

Are insurers expected to include climate considerations into their Own Risk and Solvency Assessments (“ORSAs”) in 2021?

DFS encourages insurers to consider the financial risks from climate change as they perform their ORSAs but understands that it will take time for the industry to include climate considerations in their ORSAs where appropriate. We expect further guidance to be provided in early 2021.

Will DFS require Task Force on Climate-Related Financial Disclosure (“TCFD”)-type disclosures or only encourage insurers to engage with TCFD on a voluntary basis?

The TCFD has become a globally adopted framework by regulators and industry alike. Since 2019, insurers may submit TCFD reports in lieu of responding to the NAIC Climate Risk Disclosure Survey, which some insurers have done. DFS understands that the four major components of TCFD (governance, strategy, risks, and metrics and targets) require different levels of sophistication and resources to complete. As such, DFS will continue to engage with industry participants on implementation of the various TCFD components, taking into account proportionality and materiality as some insurers are more exposed to climate-related financial risks than others.


Please direct any questions or comments to Dr. Yue (Nina) Chen, Director of Sustainability and Climate Initiatives, at [email protected].