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Climate risk for insurers

There are growing pressures and sound business reasons for life and property and casualty (P&C) (re)insurers to address the risks and opportunities arising from climate change.

Climate risk assessment is a new endeavor for many insurers, requiring new datasets, new expertise, and new approaches to operationalizing the insights from our analytics.

Moody’s partners with insurers to help them get started and progress over time to more quantitative climate risk analytics to meet their regulators’ expectations.

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What we do

Moody’s solutions blend the best available climate science, data, and analytics for quantitative climate risk assessment. 

01
Understand financial impacts

We help life and P&C insurers understand the financial impact of material physical and transition risks across both sides of their balance sheets, including market and credit risks.

02
Better understand business resilience

Our holistic, forward-looking, scenario-based approach facilitates capital stress-testing, what-if, and sensitivity analysis to better understand business resilience, shape strategy, and align portfolios.

03
Integrate into existing frameworks

We offer a straightforward approach to incorporating climate risk into your existing risk management frameworks for mitigation and adaptation planning.

04
Utilize your systems or ours

Our extensive datasets, analytics, and tools are accessible via our own platforms or through application programming interfaces so you can easily and flexibly fit them into your workflows.

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Speak to our team today

Get in touch

How we help

01 Quantifying climate risks

Quantifying climate risks

We help insurers understand the financial impact of material climate risks covering both sides of the balance sheet, including market and credit risks, and we have the required building blocks in place to ensure existing risk practices are fully climate adjusted.

02 Strategy

Strategy

Moody’s solutions assist insurers in shaping strategy, setting risk appetite, and testing business resilience through:

  • Consistent scenario-building across both sides of the balance sheet under different Representative Concentration Pathways (RCPs) for physical risk and Network for the Greening of the Financial System scenarios (NGFS) for transition risks.

  • Internal and regulatory scenario exercises with shorter time frames to act as a stress test on an insurer’s capital and business resilience as well as to update the Own Risk and Solvency Assessment (ORSA) to capture climate change impacts on insurance businesses. This includes regulatory stress tests with both static and dynamic balance sheets.
     

  • Medium- and longer-term what-if exercises under different scenarios to inform sustainable business strategy.
     

  • Sensitivity analysis highlighting how relevant climate shocks impact risk exposures, strategies, and financial positions. Apply different scenarios or assumptions to understand the potential worst-case effects.

03 Portfolio steering and risk management

Portfolio steering and risk management

There are increasing demands from insurers’ regulators to integrate new climate risk tools and methodologies into existing risk management frameworks.

With Moody’s, insurers’ actuarial, risk management, investment, and underwriting functions can rethink risk and ensure existing practices are climate-adjusted to mitigate, adapt, and transition toward net zero.   

Our solutions can help you:

  • Assess investment and underwriting portfolios’ vulnerability to climate risk based on climate-adjusted risk metrics and forward-looking metrics.

  • Align investment and underwriting portfolio strategies with revised risk appetites and transition targets.
     

  • Calculate capital resource allocation based on strategic resource allocation using revised capital market assumptions, asset and liability management (ALM), and risk capital requirements, as well as ensuring adequate reinsurance coverage.
     

  • Achieve consistency across both sides of the balance sheet for ALM and ORSA purposes. 
     

  • Set portfolio decarbonization targets and engagement strategies using company transition risk assessments that cover carbon footprints, stranded assets, brown-share assessments, and temperature alignment data. 

  • Calculate or estimate carbon footprints and emissions for real estate, offering detailed (bottom-up) insights that can be compiled at the portfolio level.  
     

  • Set building emission benchmarks toward net zero using Carbon Risk Real Estate Monitor decarbonization pathways or a proprietary one. You can also utilize a library of measures for energy efficiency and decarbonization, estimating the cost of upgrades to meet these targets.

04 Monitoring, reporting and disclosing

Monitoring, reporting and disclosing

Effective monitoring and reporting on climate risk are vital for insurers across a variety of areas, from regulatory compliance to strategic planning and financial stability.
 

Enrich climate risk reporting

  • New comprehensive climate risk metrics and targets for internal and external reporting, including ORSA and new public financial disclosure standards including ISSB, CSRD, and more
     

  • Impact of physical and transition risks on the financial position over the short, medium, and long term
     

  • Climate resilience of an insurer’s strategy when facing climate-related changes
     

  • Probable maximum loss of insured products from weather-related natural catastrophes
     

  • Total amount of monetary losses attributable to insurance payouts from natural catastrophes 
     

  • Scope 1, 2, and 3 greenhouse gas financed and insurance-associated emissions following Partnership for Carbon Accounting Financials (PCAF) protocols

  • Monitor and report on the effectiveness of risk management strategy through the ORSA
     

  • Monitoring performance versus risk limits
     

  • Active monitoring of macro-economic impacts from climate change, particularly interest rate and inflation risk exposures
     

  • Monitoring the impacts of physical risk on mortality and morbidity patterns, supplemented by continuous monitoring of long-term trends

Quantifying climate risks

We help insurers understand the financial impact of material climate risks covering both sides of the balance sheet, including market and credit risks, and we have the required building blocks in place to ensure existing risk practices are fully climate adjusted.

Strategy

Moody’s solutions assist insurers in shaping strategy, setting risk appetite, and testing business resilience through:

  • Consistent scenario-building across both sides of the balance sheet under different Representative Concentration Pathways (RCPs) for physical risk and Network for the Greening of the Financial System scenarios (NGFS) for transition risks.

  • Internal and regulatory scenario exercises with shorter time frames to act as a stress test on an insurer’s capital and business resilience as well as to update the Own Risk and Solvency Assessment (ORSA) to capture climate change impacts on insurance businesses. This includes regulatory stress tests with both static and dynamic balance sheets.
     

  • Medium- and longer-term what-if exercises under different scenarios to inform sustainable business strategy.
     

  • Sensitivity analysis highlighting how relevant climate shocks impact risk exposures, strategies, and financial positions. Apply different scenarios or assumptions to understand the potential worst-case effects.

Portfolio steering and risk management

There are increasing demands from insurers’ regulators to integrate new climate risk tools and methodologies into existing risk management frameworks.

With Moody’s, insurers’ actuarial, risk management, investment, and underwriting functions can rethink risk and ensure existing practices are climate-adjusted to mitigate, adapt, and transition toward net zero.   

Our solutions can help you:

  • Assess investment and underwriting portfolios’ vulnerability to climate risk based on climate-adjusted risk metrics and forward-looking metrics.

  • Align investment and underwriting portfolio strategies with revised risk appetites and transition targets.
     

  • Calculate capital resource allocation based on strategic resource allocation using revised capital market assumptions, asset and liability management (ALM), and risk capital requirements, as well as ensuring adequate reinsurance coverage.
     

  • Achieve consistency across both sides of the balance sheet for ALM and ORSA purposes. 
     

  • Set portfolio decarbonization targets and engagement strategies using company transition risk assessments that cover carbon footprints, stranded assets, brown-share assessments, and temperature alignment data. 

  • Calculate or estimate carbon footprints and emissions for real estate, offering detailed (bottom-up) insights that can be compiled at the portfolio level.  
     

  • Set building emission benchmarks toward net zero using Carbon Risk Real Estate Monitor decarbonization pathways or a proprietary one. You can also utilize a library of measures for energy efficiency and decarbonization, estimating the cost of upgrades to meet these targets.

Monitoring, reporting and disclosing

Effective monitoring and reporting on climate risk are vital for insurers across a variety of areas, from regulatory compliance to strategic planning and financial stability.
 

Enrich climate risk reporting

  • New comprehensive climate risk metrics and targets for internal and external reporting, including ORSA and new public financial disclosure standards including ISSB, CSRD, and more
     

  • Impact of physical and transition risks on the financial position over the short, medium, and long term
     

  • Climate resilience of an insurer’s strategy when facing climate-related changes
     

  • Probable maximum loss of insured products from weather-related natural catastrophes
     

  • Total amount of monetary losses attributable to insurance payouts from natural catastrophes 
     

  • Scope 1, 2, and 3 greenhouse gas financed and insurance-associated emissions following Partnership for Carbon Accounting Financials (PCAF) protocols

  • Monitor and report on the effectiveness of risk management strategy through the ORSA
     

  • Monitoring performance versus risk limits
     

  • Active monitoring of macro-economic impacts from climate change, particularly interest rate and inflation risk exposures
     

  • Monitoring the impacts of physical risk on mortality and morbidity patterns, supplemented by continuous monitoring of long-term trends

Explore Moody’s Climate Pathways Solution

Learn more about Moody’s Climate Pathways solution that offers a specialized scenario modeling solution for insurers, asset managers, and pensions funds enabling quick assessment of the financial impact of climate risks.

Understanding financial impacts

01 Liabilities

Liabilities

Moody’s helps both P&C and life insurers assess climate risk impacts on their underwriting portfolios:
 

Physical risks

Understand, evaluate, and manage your climate change risk in multiple regions using a probabilistic modeling approach:

  • Gain a deeper understanding of climate change’s impact on specific perils.

  • Seamlessly adjust time horizons and RCPs to capture different climate change scenarios’ effects.
     

  • Leverage a proprietary industry and economic exposure database for more accurate and effective climate change analyses.
     

  • Utilize a full range of future climate scenarios based on robust climate change science and informed by data from the Intergovernmental Panel on Climate Change (IPCC).
     


Transition risk

Calculate insurance-associated emissions based on PCAF methodology to establish a baseline and a detailed understanding of the greenhouse gas emissions associated with an insurer’s underwriting portfolio.
 

Life insurers

Mortality and longevity modeling equips insurers with advanced insights to gauge climate change’s effects on mortality rates and life expectancy. Through analyzing historical data and predictive trends, insurers can adjust premiums, reserves, and risk mitigation strategies in response to climate-induced health risks. This not only helps with precise pricing and financial planning but also enhances insurers' capacity to foresee and adapt to the evolving landscape of climate risks.

02 Assets

Assets

Our solutions support both physical and transition risk modeling for multi-asset class portfolios, including equities, corporate and sovereign bonds, corporate real estate, structured products, and more.
 

Physical risk modeling and scenarios

  • Risk levels of hazards and damage such as floods, heat stress, wildfires, hurricanes, sea level rise, and water stress at different levels of granularity, including global and regional, sector, company, or individual location levels

  • Globally comparable hazard and impact scores to identify which climate hazards are material now or in the future and which location or aggregated segment carries high climate risk. You can assess the climate risk impact via the damage rate under different RCP scenarios
     

  • Climate-adjusted macro-economic forecasts with an 80-year horizon, fully aligned with NGFS scenarios
     


Transition risk modeling and scenarios

  • Calculate financed reported and estimated Scope 1-3 emissions based on PCAF methodology to establish a baseline.
     

  • Perform climate adjusted macro-economic forecasts with an 80-year horizon, fully aligned with NGFS scenarios
     


Market risk

Moody’s top-down climate pathway scenario analysis enables insurers to analyze the financial impact of physical and transition risk from a macroeconomic view based on climate-conditioned financial variables at a global or sector level over multiple time horizons.

With flexibility to evaluate different scenario options, insurers can act quickly and confidently to select and make recommendations about the best choice of assumptions and scenarios to match their business profiles. 


Credit risk 

Moody’s supports “bottom-up” line-by-line assessment of the financial impact from physical and transition risks on credit risk, including commercial real estate, retail mortgages, and loans. These detailed credit risk projections can be aggregated to generate a portfolio view of climate-adjusted probability of default. 

Liabilities

Moody’s helps both P&C and life insurers assess climate risk impacts on their underwriting portfolios:
 

Physical risks

Understand, evaluate, and manage your climate change risk in multiple regions using a probabilistic modeling approach:

  • Gain a deeper understanding of climate change’s impact on specific perils.

  • Seamlessly adjust time horizons and RCPs to capture different climate change scenarios’ effects.
     

  • Leverage a proprietary industry and economic exposure database for more accurate and effective climate change analyses.
     

  • Utilize a full range of future climate scenarios based on robust climate change science and informed by data from the Intergovernmental Panel on Climate Change (IPCC).
     


Transition risk

Calculate insurance-associated emissions based on PCAF methodology to establish a baseline and a detailed understanding of the greenhouse gas emissions associated with an insurer’s underwriting portfolio.
 

Life insurers

Mortality and longevity modeling equips insurers with advanced insights to gauge climate change’s effects on mortality rates and life expectancy. Through analyzing historical data and predictive trends, insurers can adjust premiums, reserves, and risk mitigation strategies in response to climate-induced health risks. This not only helps with precise pricing and financial planning but also enhances insurers' capacity to foresee and adapt to the evolving landscape of climate risks.

Assets

Our solutions support both physical and transition risk modeling for multi-asset class portfolios, including equities, corporate and sovereign bonds, corporate real estate, structured products, and more.
 

Physical risk modeling and scenarios

  • Risk levels of hazards and damage such as floods, heat stress, wildfires, hurricanes, sea level rise, and water stress at different levels of granularity, including global and regional, sector, company, or individual location levels

  • Globally comparable hazard and impact scores to identify which climate hazards are material now or in the future and which location or aggregated segment carries high climate risk. You can assess the climate risk impact via the damage rate under different RCP scenarios
     

  • Climate-adjusted macro-economic forecasts with an 80-year horizon, fully aligned with NGFS scenarios
     


Transition risk modeling and scenarios

  • Calculate financed reported and estimated Scope 1-3 emissions based on PCAF methodology to establish a baseline.
     

  • Perform climate adjusted macro-economic forecasts with an 80-year horizon, fully aligned with NGFS scenarios
     


Market risk

Moody’s top-down climate pathway scenario analysis enables insurers to analyze the financial impact of physical and transition risk from a macroeconomic view based on climate-conditioned financial variables at a global or sector level over multiple time horizons.

With flexibility to evaluate different scenario options, insurers can act quickly and confidently to select and make recommendations about the best choice of assumptions and scenarios to match their business profiles. 


Credit risk 

Moody’s supports “bottom-up” line-by-line assessment of the financial impact from physical and transition risks on credit risk, including commercial real estate, retail mortgages, and loans. These detailed credit risk projections can be aggregated to generate a portfolio view of climate-adjusted probability of default. 

Exploring climate change modeling for insurers

Our podcast series is dedicated to understanding the generation, application, and interpretation of climate scenarios.

podcast
An introduction to climate change modeling

Our experts answer key questions such as how do climate scenarios differ from the scenarios that institutions normally use? What are the advantages of quantitative scenarios over narrative ones? What are the disadvantages or limitations that people should keep in mind?

Listen
podcast
A closer look at the composition of climate scenarios

Listen as our panelists discuss the sources of climate narratives, physical versus transition risks, NGFS scenarios, and more.

Listen
podcast
What’s new from the NGFS? Limitations and future developments

Our panelists discuss important aspects of NGFS scenarios, including their evolution as well as potential advantages and disadvantages.

Listen

News and views

article
Moody's
The winners and losers of climate transition

In the first of this series of six articles, we explore sectoral-level impacts using top-down modeling.

Read more
article
Moody's
Achieving a balanced view of climate risk

In the second of this series of six articles, we explore balancing bottom-up and top-down analysis for strategic asset allocation work, ORSA, and Task Force on Climate-related Financial Disclosures reporting.

Read more
article
Moody's
How to choose the right climate model

In the third of this series of six articles, we explore choosing the right climate model to support your goals for strategic asset allocation work, ORSA, and Task Force on Climate-related Financial Disclosures reporting.

Read more
article
Moody's
Expanding beyond the Network for Greening the Financial System (NGFS) — what are we missing?

In the fourth of this series of six articles, we explore ways to broaden your modeling approach and identify missing components in your scenarios to improve interpretation.

Read more
article
Moody's
Analyzing and attributing climate change impacts on asset returns

In the fifth of this series of six articles, we explore the impact of physical and transition risks on asset returns.

Read more
article
Moody's
Considering climate risk uncertainty in portfolio construction

In the last of this series of six articles, we present a simple case study on accounting for climate risks in asset allocation procedures.

Read more
whitepaper
Moody's
Life insurer survey: climate risk modeling in the risk assessment process

Although it is accepted that climate risk will have to be included in the ORSA and its equivalents, it is unclear how much of it will be qualitative, how much will be quantitative, and the timelines for embedding the risk. One of this survey’s aims is to offer clarity.

Read more

Related solutions

Climate Pathways Solution

Our specialized scenario modeling solution enables insurers, asset managers, and pension fund managers to quickly assess climate-related financial impact.

Learn more
Climate change models

Models that extend the industry standard — a fully probabilistic approach to Models that extend the industry standard — a fully probabilistic approach to climate change risk.climate change risk.e industry-standard, fully probabilistic approach to climate change risk.

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Climate on Demand

Provides foundational insights through extensive data and analytics that define current and forward-looking location-specific threats to real assets from climate-related event damages and business disruptions.

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Commercial mortgage metrics

Evaluate financial and physical risks and assess the climate’s impact on commercial real estate markets under various scenarios, including current policies, delayed transitions, and Net Zero 2050.

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Climate-adjusted EDFX

EDF-X Climate Impact helps you understand how global warming and different policy responses affect future company performance.

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Net Zero Underwriting

Provides (re)insurers with a detailed understanding of the greenhouse gas (GHG) emissions associated with their insurance underwriting portfolios. 

Learn more

The power of Moody's data and analytics

experience in natural catastrophe modeling

Over 30 Years'

Experience in natural catastrophe modeling 

Companies with carbon emissions data

80 million

Companies with carbon emissions data

Climate-adjusted macroeconomic & financial variables for 70 countries

Over 18,000

Climate-adjusted macroeconomic and financial variables for 70 countries

Entities covered in our expanding corporate physical risk database

More than 22,000

Entities covered in our expanding corporate physical risk database

Natural catastrophe models to assess damages from acute and chronic climate hazards

Over 200

Natural catastrophe models to assess damages from acute and chronic climate hazards

Facilities with climate risk scores and analytics providing forward-looking damage rates for 8 climate hazards

Over 10 million

Facilities with climate risk scores and analytics providing forward-looking damage rates for eight climate hazards

Corporate entities assessed on their transition plans and alignment with the IEA scenarios

More than 7,000

Corporate entities assessed on their transition plans and alignment with International Energy Agency scenarios

Companies and entities in Orbis, a powerful comparable data resource on private and listed companies

Over 500 million

Companies and entities in Orbis, a powerful comparable data resource on private and listed companies

Financial statements representing over 45 million global private firms

Over 242 million

Financial statements representing over 45 million global private firms

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Speak to our team

Interested in learning more about our offerings? Our solutions specialists are ready to help.