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UPDATE 1-Bank of England tells insurers to step up climate change preparations

Wed, 9th Sep 2020 12:04

(Adds more detail)

By Huw Jones

LONDON, Sept 9 (Reuters) - How much capital insurers and
other financial firms must hold could be directly linked to
their readiness to cope with risks from climate change, a senior
Bank of England official said on Wednesday.

While insurers have shown resilience in the face of
COVID-19, adapting to the longer-term threat of climate change
is likely to be a far greater challenge, said BoE executive
director Anna Sweeney.

Insurers face several risks from climate change, such as
heavier policy claims due to more physical damage from fires and
storms, and from the impact on their investments while
transitioning to a lower carbon economy.

The kind of once-in-100-years flood in Britain that today
racks up industry losses of 7 billion pounds could in future
lead to double that figure in damages, Sweeney said.

There is "still some way to go" for a number of insurers in
dealing with the impact of climate change on their balance
sheets, she said.

"It is therefore possible that the incentives to address
climate change risk for both firms and supervisors could be
enhanced if it were incorporated explicitly into firms' capital
requirements," Sweeney told an event held by Moody's rating
agency.

"Whether and how this should be achieved is not an easy
question to answer. But it is surely a necessary one, and one
that we must begin to address in a timely manner, for insurers
and for the wider regulated financial services industry."
(Reporting by Huw Jones, editing by Louise Heavens and Hugh
Lawson)

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