Consultation response
In a joint letter signed by 19 other organisations, Finance Watch urged the Board of Supervisors of the European Insurance and Occupational Pensions Authority (EIOPA) to protect policyholders and taxpayers by reflecting climate-related transition risks in the formula used to calculate insurers’ solvency capital requirements.
Ahead of the vote by EIOPA’s Board of Supervisors on the final report concerning the prudential treatment of sustainability risks, 20 civil society organisations call on EIOPA to apply the right policy option to protect both policyholders and taxpayers. The need to adjust insurers’ capital requirements for fossil fuel-related stock and bond exposures, is a pivotal step in mitigating transition risk and ensuring long-term financial stability. The empirical evidence clearly supports the adjustment of equity risk and spread risk charges for these high-risk assets, as outlined in policy options 3 of the EIOPA consultation paper.
Since Finance Watch landmark report and the start of the review of the EU insurance prudential framework, tackling climate risk has been put firmly on the agenda. EIOPA is finalising a report to conclude the assessment of fossil-fuel related exposures to confirm whether the risk is currently underpriced. In previous consultation processes, civil society, consumer organisations, and individual citizens have voiced strong support for relevant adjustments as the current solvency capital requirements do not adequately reflect the growing transition risks associated with climate change. Failing to account for these risks in the standard formula for capital requirements would leave the insurance sector—and by extension, European policyholders and taxpayers—vulnerable.
