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Climate Change
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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.

Banking Guidance

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.


On February 9, 2021, DFS issued an industry letter alerting banking institutions subject to the New York Community Reinvestment Act that they may receive credit for financing activities that support the climate resiliency of low- and moderate-income, and underserved communities.

Insurance Guidance

 

Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change

On November 15, 2021, DFS issued final Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change, detailing DFS’s expectations related to insurers' management of the financial risks from climate change. After issuing a proposed version of the guidance in March, DFS received comments from a broad range of stakeholders, including insurers, trade groups, consumer advocates, climate experts, rating agencies and other financial regulators. The final guidance reflects DFS’s careful consideration of all comments received.  

The guidance was informed by DFS’s ongoing dialogue with the insurance industry and international regulators and is based on the New York Insurance Law, National Association of Insurance Commissioners manuals, and the work of international regulators and networks. Building on an earlier circular letter on Climate Change and Financial Risks, the guidance sets out DFS’s expectations that all New York insurers start integrating the consideration of the financial risks from climate change into their governance frameworks, business strategies, risk management processes and scenario analysis, and developing their approach to climate-related financial disclosure. 

Final Guidance

Proposed Guidance


Circular Letter

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.


 

FAQs for the Insurance Industry

To which insurers does Insurance Circular Letter No. 15 (2020) (the “Circular Letter”) apply?
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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 oversight over domestic and authorized foreign insurers, however, is not identical.

Does DFS plan to issue new regulations pertaining to its climate-related supervisory activities?
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No. DFS does not currently plan to issue 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?
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As stated in the Circular Letter, questions pertaining to an insurer’s approach and activities related to the financial risks from climate change have been integrated into DFS’s examination process. Insurers will receive information requests related to climate in their First Day Letters to prepare for these exams. DFS issued final Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change on November 15, 2021. 

Does the reference to “insurers’ assets” in DFS’s guidance for insurers on managing the financial risks from climate change apply to third party funds managed by insurers?
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No. The reference to “insurers’ assets” in DFS’s guidance does not apply to third party 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 requirements for the group as a whole) or must it be done at the insurer level?
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It may be done at either the holding company level or the insurer level.

What are DFS’s plans with respect to scenario analysis and stress testing?
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Please refer to DFS’s Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change for more information on DFS’s expectations regarding scenario analysis and stress testing.

Are insurers expected to include climate considerations into their Own Risk and Solvency Assessments (“ORSAs”) in 2021?
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DFS encourages insurers to consider the financial risks from climate change as they perform their ORSAs but understands that it will take time for companies to include climate considerations in their ORSAs where appropriate. Please refer to DFS’s Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change for more information on DFS’s expectations regarding ORSAs.

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?
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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. Please refer to DFS’s Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change for more information on DFS’s expectations regarding public disclosure.

How can I access the information covered in the DFS Climate Change Seminar Series?
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In order to ensure open discussion during the seminars, recordings of the seminars have not been made public. However, most of the content covered during the seminars can be found in publicly available disclosure by several companies, including those represented by panelists in the DFS Climate Change Seminar Series. In particular, companies’ public sustainability or TCFD (Task Force on Climate-related Financial Disclosures) reports, CDP disclosures (a free account needs to be set up to access the CDP responses), and NAIC Climate Risk Disclosure Survey responses are good sources of information.

Can you explain some of the climate-related acronyms frequently used in the seminars?
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Events


DFS Climate Change Webinar Series - Insurance

DFS Reports for New York Domestic Insurers

Insurance Industry Knowledge Exchange 

Seminar 1: Why Insurers Should Care about Climate Change
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This first seminar in the DFS Climate Change Seminar Series focused on why insurers should care about climate change. Insurers of different sizes and at different stages of the journey of managing the financial risks from climate change shared their experiences, motivations, and challenges. The United Nations Principles for Sustainable Insurance provided a global perspective.   

Moderator: My Chi To, Executive Deputy Superintendent of Insurance

Panelists:

  • Jeff Arricale, Chief of Staff and Head of Capital Markets, ProSight Specialty Insurance
  • Butch Bacani, Program Leader, United Nations Environment Programme's Principals for Sustainable Insurance
  • Francis Bouchard, Group Head of Public Affairs & Sustainability, Zurich Re
  • Karen Ignagni, President and CEO, EmblemHealth
  • Jon Richter, Vice President of Global Sustainability, MetLife
Seminar 2: Risk Management and Disclosure
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Disclosure and risk management are essential components of managing the financial risks from climate change. This panel of insurers have undertaken voluntary disclosure efforts and started incorporating climate change into their risk management frameworks. In this session, they explained what they have done and learned in the process and how others might get started as well. Ceres - a corporate sustainability think tank, provided a perspective beyond the insurance industry on these topics.

Moderator: Yue (Nina) Chen, Director of Sustainability and Climate Initiatives

Panelists: 

  • Alban de Mailly Nesle, Chief Risk and Investment Officer, AXA Group
  • Mark Pasko, Chief Legal Officer and Corporate Secretary, QBE North America
  • Mark Prindiville, Executive Vice President and Chief Risk Officer of Allstate Insurance Company
  • Veena Ramani, Senior Program Director of Capital Market System, Ceres
  • Jennifer Waldner, Chief Sustainability Officer, AIG
Seminar 3: Insurers as Investors
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Insurers are among the largest debt and equity investors in the world. However, the impact of climate change on the asset side of insurers’ balance sheets typically gets much less attention than the liability side. The insurers on this panel have undertaken voluntary efforts to understand and manage the financial risks that climate change poses to their investments. In this session, they explained what they have done and learned in the process and how others might get started. The UN Principles for Responsible Investment, which has a number of insurance companies as signatories, provided a perspective beyond the insurance industry on these topics.

Moderator: My Chi To, Executive Deputy Superintendent of Insurance

Panelists: 

  • Claudia A. Bolli, Head of Responsible Investing, Swiss Re Group Asset Management
  • Chris Fowle, Director of the Americas, UN Principles for Responsible Investment
  • Karen Niessink, Managing Director, New York Life Investment Management
  • Rachele Roth, Investment Manager, Utica National Insurance Group
  • Kevin Strobel, CIO and Head of Investments and General Account ALM, Transamerica 
Seminar 4: Setting Metrics and Targets
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You cannot manage what you cannot measure. What are the meaningful metrics for insurers to measure the financial risks from climate change? Given the complexity and uncertainty surrounding climate change, where should companies start? What targets are being set by the leaders in this space? This session explained what they have done and learned in the process and how others might get started as well. 2 Degrees Investing Initiative, a non-profit think tank, provided a global ad multi-sector perspective on these topics. 

Moderator: Yue (Nina) Chen, Director of Sustainability and Climate Initiatives

Panelists: 

  • Thomas Liesch, Climate Integration Lead at Allianz SE
  • Maarten Vleeschhouwer, Head of PACTA at 2 Degrees Investing Initiative
  • Sarah Wilson, Senior Director, Responsible Investing at Nuveen, a TIAA company


DFS Climate Change Webinar Series - Banking

Series 1: The Fundamentals of Financial Risks from Climate Change

Series 2: The Physical Risks from Climate Change in New York and the Northeast

Series 3: Clean Energy Financing for Community and Regional Banks 

Resources

New York Domestic Insurers’ Management of the Financial Risks from Climate Change - An Analysis of NAIC Climate Risk Disclosure Survey Responses and Other Reporting
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DFS has issued a report on “New York Domestic Insurers’ Management of the Financial Risks from Climate Change - An Analysis of NAIC Climate Risk Disclosure Survey Responses and Other Reporting.” The analysis covers 121 responses by insurers to the 2020 Survey and eight Task Force on Climate-Related Financial Disclosures reports submitted in 2020 by a total of 93 groups and non-affiliated companies, representing insurers with countrywide premiums ranging from $100 million to close to $100 billion. Survey questions cover how insurers incorporate climate risks into their governance, risk-management, and investment plans, as well as detail steps taken by insurers to engage key constituencies and policyholders on the topic of climate change.

Based on a framework that it developed, DFS rated insurers’ responses in one of four categories: “Yet to Start,” “Early Stage,” “Making Progress,” or “Good Progress.” DFS intends to continue reviewing insurers’ Survey responses and other disclosure materials to understand insurers’ overall status in identifying, assessing, and managing climate risks, identify good practices that can be shared with the industry, and support risk-based supervision. Insurers’ ratings will be used only for DFS’s supervisory purposes and will not be publicly disclosed.

DFS hosted a webinar on August 4, 2021 to provide an overview of the report.  The recording can be viewed  here. The slides can be viewed here.

An Analysis of New York Domestic Insurers’ Exposure to Transition Risks and Opportunities from Climate Change
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DFS has issued a report analyzing New York domestic insurers’ exposure to the financial risks arising from society’s transition towards a low-carbon economy, furthering DFS’s efforts to support insurers in managing the financial risks from climate change. The report, “An Analysis of New York Domestic Insurers’ Exposure to Transition Risks and Opportunities from Climate Change,” is the result of a collaboration between DFS and the 2° Investing Initiative (2DII), an independent, non-profit think tank working to align the financial sector with international climate goals.

The report is intended to provide insurers with an example of a tool that can help them analyze their transition risks and inform actions to mitigate them. Working with DFS, 2DII analyzed the transition risks of New York domestic insurers by assessing the alignment of their equity and corporate bond portfolios using their 2019 Schedule D data against different climate scenarios. The report also outlines investment-related strategies that insurers can consider to mitigate their transition risk exposure.

Insurers can upload their portfolios to 2DII's online platform TransitionMonitor to generate individual reports.  The tool's terms and conditions and confidentiality information can be found here.  2DII and TransitionMonitor are completely independent of DFS. 

DFS and 2DII held two webinars for New York domestic insurers to provide an overview of the aggregate report and discuss how insurers might use their individual reports that were generated by 2DII for insurers included in the analysis.

Recording of the webinar on the aggregate report on June 21, 2021 (WebEx)

Slides of the webinar on the aggregate report on June 21, 2021 (PDF)

Recording of the webinar on the individual reports on July 12, 2021 (WebEx)

There were no slides used for the July 12, 2021 webinar.

Questions?

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