Bank of England launches 2019 insurance stress-test, informed by 2ii stress-test scenario

Bank of England launches 2019 insurance stress-test with climate component
– Available on Transition Monitor Platform from July 2019 –
  Today, the Bank of England is launching the 2019 insurance stress-test. For the first time, this stress-test will contain an explicit climate component, cementing the Bank of England’s leadership on sustainable finance.

The stress-test parameters have been informed in part by our “Storm Ahead” paper launched in January this year, marking one of the first comprehensive stress-test scenarios across both physical and transition risks for financial supervisors. Crucially, the stress-test includes an “Inevitable Policy Response” / “Climate Minsky Moment” scenario, a key recommendation of our previous research to address the issue of the short-term time horizons of current stress-testing framework.

From mid-July, 2° Investing Initiative is updating its Transition Monitor tool to allow UK insurance companies and other stakeholders to run the stress-test online. 2° Investing Initiative will in parallel launch a dynamic stress-testing application that allows users to calibrate their own stress-tests as a function of their specific portfolio and assumptions around key parameters. 

This work informs part of the broader 2° Investing Initiative partnerships with financial supervisors, including 3 of the 5 largest insurance supervisors in the world. This includes a partnership with EIOPA on climate scenario analysis on the EU insurance sector (Link), as well as previous work with the California Insurance Commissioner (Link), among others. Contact us to find out more.

As always, we are keen to hear your feedback, questions, and comments.