b'Insurance Regulatory | US/NAIC | Insurance Industry Regulators Address Climate RiskOn February 9, 2021, the NAIC announced its strate- risks from climate change into their governance gic priorities for 2021, and these included Climateframeworks, risk management processes and Risk and Resiliency. The NAIC noted that it is commit- business strategies. For example, the Circular Letter ted to working with state, federal and internationalprovides examples of actions that each regulated stakeholders to coordinate climate-related risk andinsurer, regardless of its circumstances, should be resiliency assessments, disclosures and evaluationtaking now, which include the following:initiatives so that each state has the information, Designating a board member or a committee policies and tools that promote resiliency and ensureof the board, as well as a senior management stable insurance markets for its citizens.function, to be accountable for the insurers At the February 10, 2021, public meeting of the Taskassessment and management of the financial risks Force, detailed presentations were made by a sustain- from climate change;ability organization and two insurance carriers Having the insurers enterprise risk management regarding climate risk disclosure. The subject offunction and Own Risk and Solvency Assessment disclosure has been under discussion for some time, asprocess address climate change as a reasonably some constituencies push for mandatory quantitativeforeseeable and relevant material risk and consider disclosure to supplement or in lieu of the current NAIChow it impacts risk factors such as investment risk, Disclosure Survey (adopted in 2010), which some haveliquidity risk, operational risk, reputational risk, criticized as being and lacking comparability.strategy risk and underwriting risk; and At the upcoming NAIC Spring National Meeting, the Starting to develop the insurers approaches to Task Force will focus on major issues facing stateclimate-related financial disclosures and to con-regulators, including pre-disaster mitigation, solvencysider engaging with the TCFD Guidance and other (from both an underwriting and an investmentestablished initiatives when doing so. perspective), climate risk disclosure, innovation andThe Circular Letter noted that, in the process of technology. Task Force will continue to consider riskconsidering the impact of climate change, each reduction measures and the role that insuranceinsurer should take a proportionate approach that regulators can play in advancing efforts to protectreflects its exposure to the financial risks from and prepare policyholders and insurance markets toclimate change and the nature, scale and complexity withstandthe consequences of climate risk;evaluateof its business. In addition, NYDFS is planning to financial regulatory approaches to climate risk andorganize a series of global knowledge exchange resiliency; consider appropriate climate risk disclo- webinars to allow industry participants to share their sures for insurers; consider innovative solutions andgoals, experiences and lessons learned to date in strategies within the insurance sector; and to reviewtheir efforts to manage the financial risks from the use of predictive modeling to better assess andclimate change. Notably, the Circular Letter states evaluate climate risk exposures. that questions related to an insurers approach and NYDFS Initiativesactivities related to the financial risks from climate change will be integrated into NYDFSs insurer On September 22, 2020, the NYDFS issuedexamination process starting in 2021. Insurance Circular Letter No. 15 (2020) regarding the impact of climate change on insurers (the CircularAt the end of 2020, the NYDFS issued an FAQs Letter). The Circular Letter states that, at a highabout the Circular Letter (the FAQ). The FAQ level, NYDFS expects: all New York-licensed insurersanswered insurer-specific questions about the to start integrating the consideration of the financialapplicability and scope of the Circular Letter. MAYER BROWN 77'