Assessing the Impact of Climate Risk Stresses on Life Insurance Portfolios

Dong Michelle (), Bruhn Aaron, Han Lin Shang and Hui Francis
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Dong Michelle: Research School of Finance, Actuarial Studies and Statistics, Australian National University, Canberra, Australia
Bruhn Aaron: Research School of Finance, Actuarial Studies and Statistics, Australian National University, Canberra, Australia
Hui Francis: Research School of Finance, Actuarial Studies and Statistics, Australian National University, Canberra, Australia

Asia-Pacific Journal of Risk and Insurance, 2024, vol. 18, issue 1, 87-114

Abstract: Understanding climate-related risks and stresses is an emerging area of interest for life insurers globally. However, there are complexities in quantifying climate risk stress impacts due to the long-term nature of these risks, and the interactions between physical and transition risks over time. In this paper, we build on understanding the financial impacts of climate risk stresses for life insurers in Australia, by identifying key climate-related mortality risks, and quantifying these by applying short- and long-term stresses from existing literature to two synthetic life insurers. We perform sensitivity tests to demonstrate the variability and range of plausible results. Overall, results show that the expected financial impacts from short-term events in isolation are small relative to expected long-term changes in mortality. Furthermore, the value of a mortality hedge is even more apparent given the increased mortality risk for yearly renewable-term insurers in the short to medium term.

Keywords: mortality; air pollution; temperature; transition risk (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/apjri-2023-0010

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