March 29, 2021

New York Department of Financial Services Issues Proposed Guidance for New York Domestic Insurers on Managing Financial Risks from Climate Change


On March 25, 2021, the New York Department of Financial Services (NYDFS) issued for public comment “Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks of Climate Change” (Guidance). Comments must be submitted by 11:59 p.m. EDT on Wednesday, June 23, 2021 and must be made using a comment template and sent to

The Guidance states that it is intended to support New York domestic insurers in managing the financial risks from climate change (climate risks). It expands on NYDFS Circular Letter No. 151 in requiring each insurer to take a proportionate approach to managing climate risks that reflects its exposure to those risks and the nature, scale and complexity of its business. While the circular letter was more conceptual, the Guidance is intended to provide a more detailed description of NYDFS expectations.

The Guidance is informed by NYDFS’s review of insurers’ enterprise risk reports, Own Risk and Solvency Assessment (ORSA) Summary Reports, NAIC Climate Risk Disclosure Survey responses and other voluntarily filed disclosure materials, including Task Force on Climate-related Financial Disclosures (TCFD) reports, sustainability reports and disclosure questionnaires. Based on that review, NYDFS reports that it found a wide range of levels of maturation and sophistication among insurers in terms of understanding and managing climate risks, with larger insurers typically more advanced than smaller ones, which, in some cases, have not yet thought about the issue.

Of note, the Guidance states that, as an insurer’s expertise and understanding of climate risks develop, NYDFS expects the insurer’s approach to managing these risks to mature. Over time, an insurer’s analysis of climate risks and assessment of their materiality for its business should shift from a qualitative approach to a quantitative approach. While a qualitative assessment may be based on simple models and a small set of risk factors, a quantitative assessment should rely on sophisticated models and a broader set of risk factors, which should include the following branded risk factors described in the NAIC Financial Condition Examiners Handbook 2020: credit, legal, liquidity, market, operational, pricing and underwriting, reputational and strategic risks.

Also, the Guidance notes that an insurer that is developing a climate risk approach or model may need more time to incorporate it into its risk management function or to establish an adequate control environment. That insurer should start by qualitatively analyzing the impact of climate risks on the branded risk factors for its business lines and assets. In addition, it should assess how its business (both assets and liabilities) will perform under various scenarios, such as (1) an orderly transition that phases out fossil fuel-based energy and transportation with minimum financial market disruption and a limited increase in natural disasters, (2) a disorderly transition with a large financial market disruption and a limited increase in natural disasters, (3) a disorderly transition with a drastic increase in natural disasters and (4) no transition (as the economy continues to use the same amount of fossil fuel) with a drastic increase in natural disasters.

NYDFS states that, in its view, a strategic response to climate change requires a longer-term view than the typical business planning horizon of three to five years. Instead the horizon for analyzing financial risks and opportunities related to climate change should expand over time to a medium-term (e.g., 10 years) and ultimately long-term (e.g., 30 years) view. NYDFS’s expectation for the timing of this progression will depend on the situation of each insurer, with insurers with the most developed climate-related risk profiles expected to start experimenting with the long-term horizon now, and other insurers expected to do so in the next two to three years.

Under the Guidance, over the next two to three years, insurers should start specifying key considerations that inform their assessment of the materiality of climate risks for their businesses. They should pay attention to not only internal factors, such as their business models, long-term strategies and overall risk profiles, but also external factors, such as the economic and political environment, the different information needs of different users of the disclosure and recent developments in risks and disclosure requirements. If an insurer deems climate risks to be immaterial, the insurer is expected to disclose this assessment, along with the qualitative and quantitative basis for it. If an insurer deems climate risks to be material, the insurer is expected to disclose related figures, metrics and targets as well as the methodologies, definitions and criteria used to make that determination.

NYDFS expects insurers to make use of the TCFD framework and other similar initiatives, including the tools and case studies that they provide, in developing their approach to climate-related financial disclosures. The NAIC Climate Risk Disclosure Survey allowed a TCFD report to be submitted in lieu of responding to the survey in its 2020 cycle. The CDP, Sustainability Accounting Standards Board, Climate Disclosure Standards Board and others have also developed implementation guides and questionnaires on the TCFD framework.

In many respects, the Guidance’s requirements reflect more stringent supervisory expectations for climate risk assessment and disclosure by New York domestic insurers. In addition, the NYDFS proposal and responses to it will likely influence the similar deliberations of the NAIC Climate and Resiliency (EX) Task Force,2 which is also considering climate risk disclosure.



1 Discussed in more detail in our earlier Perspective “NYDFS: Regulated Insurers Must Assess Financial Risks from Climate Change, 2021 Exams Will Review.

2 Described in our earlier Perspective “US NAIC Prioritizes Climate Risk and Resilience with a Focus on Related Disclosure.

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