Reserve Bank's stress testing plans for insurers revealed

Reserve Bank's stress testing plans for insurers revealed | Insurance Business New Zealand

Reserve Bank

The Reserve Bank of New Zealand (RBNZ) is planning to incorporate climate change into its stress testing plans for insurers and banks.

In an opinion piece published on RBNZ’s website, Assistant Governor Simone Robbers discussed the importance of dealing with climate change now, because of its wide-ranging effects on the financial sector.

According to Robbers, climate change is a direct challenge to the stability of the financial system. Aside from the effects of disasters, shifting to a lower-carbon economy will greatly impact industries and economies that traditionally rely on fossil fuels.

“We are also exploring how we can incorporate climate change into our stress testing for banks and insurers,” Robbers said. “Our 2021 stress test plan includes drought conditions in a bank stress test scenario and severe weather events in an insurance scenario.”

Last year, RBNZ worked with the Financial Markets Authority to upskill its supervisors on climate risks and climate-related financial disclosures. This included an introduction to climate-related risks, the relationship of climate related risks to traditional financial risks, and the Task Force on Climate-Related Financial Disclosures’ risk framework. The two regulators will continue the collaboration, along with other fellow members of the Council of Financial Regulators.

RBNZ also began reporting on its verified carbon footprint for the first time last year, and it is now working to develop an emissions reduction plan.

“While we are pleased with our progress, we all need to do more and move with pace,” Robbers said. “Although it will take time and effort, we are committed, alongside the Government and other financial regulators globally. Confronting climate change requires a holistic and global response and we will be much more effective if we are all pulling in the same direction.”