The Bank of England’s (BoE) Prudential Regulation Authority (PRA) published Supervisory Statement 5/25 last December, outlining its expectations that banks and insurers take a forward-looking and strategic approach to managing climate-related risks. Ortec Finance has broken down what the guidance means for UK insurers’ investment, risk, and sustainability teams.
The PRA has made clear that firms of all sizes may face significant climate risk exposure, with the severity shaped by an institution’s business model and the geographical concentration of its balance sheet.
As climate risk is systemic, the regulator anticipates all insurers will be materially exposed, requiring them to build robust climate risk management frameworks to evaluate the resilience of their business models and investment strategies.
For insurers with material exposure, the PRA identifies climate scenario analysis as a central tool for quantifying and managing climate risks, as well as for conducting internal capital adequacy assessments under the Own Risk and Solvency Assessment (ORSA) framework.
On physical risks, assessments must be geographically granular enough to capture shifts in extreme weather frequency and longer-term changes in temperature and precipitation. For transition risks, firms must account for concentrations in transition-sensitive sectors such as fossil fuels, while on market risks, insurers must recognise that future returns may be more volatile than historical data suggests.
Ortec Finance offers insurers support in meeting these obligations through its GLASS asset-liability management (ALM) software and ClimateMAPS climate scenario analysis solution. Together, the tools enable insurers to measure, monitor, and manage portfolio climate risk in a way that integrates with traditional risk frameworks — helping firms align with the PRA’s expectations across their entire balance sheet.
For more insights, read the full story here.
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