On August 11, 2022, the Climate and Resiliency (EX) Task Force (“C&R Task Force”) met at the Summer 2022 National Meeting of the National Association of Insurance Commissioners (“NAIC”). While the C&R Task Force did not announce any major new developments or expose any substantive items for review or comment, it reported on the progress of several important initiatives that it has been overseeing over the past few years.
The Solvency Workstream of the C&R Task Force reported that it had made the following referrals to other organs of the NAIC to consider making certain enhancements to NAIC regulatory tools:
- To the Financial Analysis Solvency Tools (E) Working Group – to consider modifications to the NAIC’s Financial Analysis Handbook to incorporate procedures for utilizing the property and casualty risk-based capital catastrophe reporting data, any investment stress scenario results available from the NAIC Capital Markets Bureau, and Climate Risk Exposure Survey results (if available) in conducting ongoing financial analysis
- To the Financial Examiners Handbook (E) Technical Group – to consider enhancements to the planning and fieldwork phases of financial examinations, including adding climate change risks to Exhibit B (Exam Planning Questionnaire) and Exhibit Y (Examination Interviews), as well as incorporating the consideration of climate change risks into field examinations of insurers’ investment management programs, underwriting processes and reinsurance programs
- To the Own Risk and Solvency Assessment (ORSA) Implementation (E) Subgroup of the Group Solvency Issues (E) Working Group – to consider enhancements to the ORSA Guidance Manual to address climate change risks
Climate Risk Disclosure Workstream
The Climate Risk Disclosure Workstream briefly discussed the redesigned NAIC Climate Risk Disclosure Survey.
In 2021, the District of Columbia and 14 states participated in the Climate Risk Disclosure Survey, representing nearly 80 percent of the US insurance market. All insurers writing at least $100 million in direct written premium in any participating state are required to complete the survey annually. For the past two years, insurers were allowed to utilize the reporting system of the Task Force on Climate-Related Financial Disclosure (“TCFD”) of the Financial Stability Board in lieu of the NAIC survey questions. The TCFD includes four core elements: (1) governance, (2) strategy, (3) risk management, and (4) metrics and targets. In October 2021, the Financial Stability Oversight Council, as part of its Report on Climate-Related Financial Risk, recommended that climate-related disclosure tools build on the foregoing four core elements of the TCFD.
However, over the past two years, the workstream has worked to redesign the Climate Risk Disclosure Survey, taking into account appropriate climate risk disclosures within the insurance industry and evaluating the existing survey in terms of alignment with other sectors and international standards. The revised survey was adopted by the C&R Task Force at its March 2022 meeting and by the NAIC Executive Committee in April 2022. This survey can be used by state insurance regulators voluntarily, at their discretion, although as of the Summer National Meeting, it was unclear if other jurisdictions, besides the aforementioned 15, had begun using the revised survey. Many insurers will be submitting the survey for the first time in 2022, and the Climate Risk Disclosure Workstream plans to monitor the reporting using the revised survey.
Wildfire Mitigation & Other Matters
The C&R Task Force also heard an extensive panel presentation on wildfire mitigation, which may become a focus of the C&R Task Force in the future, as well as other reports, including on certain developments with respect to climate risk at the federal level.
To view additional updates from the US NAIC Summer 2022 National Meeting, visit our meeting highlights page.
1 In April, the NAIC announced that 15 jurisdictions have committed to utilizing the new standard for the Climate Risk Disclosure Survey in 2022: California, Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington. See US Insurance Commissioners Endorse Internationally Recognized Climate Risk Disclosure Standard for Insurance Companies (April 8, 2022).