A0223
Title: Integrating climate risks and nonlinear dependencies into solvency assessment for non-life insurers
Authors: Onur Oezdil - Friedrich-Alexander-Universitaet Erlangen-Nuernberg (Germany) [presenting]
Abstract: In light of increasing physical and transitional climate risks, understanding their combined impact on assets and liabilities is crucial for the financial stability of non-life insurers, as they are significantly affected by both types of risks. The aim is to analyze how climate risks influence the solvency requirements of non-life insurers, where both physical and transitional risks, along with their potential interdependencies, are modeled using copulas with tail dependence. Rather than focusing on the direct effects on solvency capital requirements, the emphasis is on minimum risk and return requirements, also referred to as solvency lines, for brown, green, and other types of investments. Given that asset allocations are more adaptable and accessible in response to short-term climate shocks compared to equity or liability structures, they are anticipated to be the primary focus of management actions for maintaining solvency. The analysis of different climate scenarios reveals their potential effects on the permissible investment portfolios of insurers over several years. Specifically, insurers might need to achieve an additional annual return of approximately 6\% for a one-year time horizon and 3.2\% for a ten-year period, whereby these requirements vary significantly based on the composition of the assets and their interdependencies.
