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The Actuary The magazine of the Institute & Faculty of Actuaries

IFoA publishes climate change guide for life actuaries

The Institute and Faculty of Actuaries (IFoA) has published a new guide to help life actuaries incorporate climate change considerations into their day-to-day work.

Actuaries urged to monitor climate risks ©Shutterstock
Actuaries urged to monitor climate risks ©Shutterstock

The guide links possible climate change impacts to different areas of actuarial work, from product pricing and design, to investment strategies and risk governance.

It outlines practical steps for actuaries to take, such as qualitative scenario analysis to determine potential impacts, and the logging of climate threats on risk registers.

The guide sits alongside various others published by the IFoA. A general guide to climate change is available, as well as ones for general insurance and pensions actuaries. A guide for investment actuaries is to follow.

“Climate change could give rise to impacts on health, mortality, physical assets, and financial markets,” said David Ford, IFoA member and chair of the working party that wrote the latest guide.

"We propose approaches and frameworks to more directly link climate change considerations into actuarial work; for example into typical insurance enterprise risk management (ERM) frameworks."

The guide reveals that large insurers are making good progress in climate change considerations, particularly in relation to investments.

However, quantitative understanding for the potential impact of climate change is still developing for smaller firms, and actuaries are urged to help support these developments.

The document also describes how regulators and advisory bodies are developing frameworks and regulation aimed at monitoring, measuring and managing emerging climate risks.

The Prudential Regulatory Authority and Financial Conduct Authority in the UK have both published consultation papers, and created the regulatory Climate Financial Risk Forum.

“Regulation and disclosure continues to develop. This is an area where actuaries will need to monitor ongoing developments,” Ford continued.

"More generally, engaging internally with exercises such as scenario analysis may provide greater insight into the specific risks a company faces.

"Achieving cross-disciplinary and wider firm engagement will be essential in embedding consideration of climate change in strategic decision making and in more quantitative and robust risk management processes.

"Finally, across all of these aspects, actuaries and firms need to reflect on the need for disclosures around climate change-related aspects."

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