Physical Climate Risk Factors and an Application to Measuring Insurers’ Climate Risk Exposure

Robert Engle, Shan Ge (), Hyeyoon Jung and Xuran Zeng ()
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Shan Ge: https://www.stern.nyu.edu/faculty/bio/shan-ge

No 1066, Staff Reports from Federal Reserve Bank of New York

Abstract: We construct a novel physical risk factor using a portfolio of REITs, long on those with properties highly exposed to climate risk and short on those with less exposure. Combined with a transition risk factor, we assess U.S. insurers’ climate risk through operations and $13 trillion in asset holdings. Estimating dynamic climate betas, we find higher stock return sensitivity to the physical risk among insurers operating in riskier regions and to transition risk among those holding more brown assets. Using these betas, we calculate capital shortfalls under climate stress scenarios, offering insights into insurers’ resilience to climate risks.

Keywords: insurance; climate change; physical risk; transition risk (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Pages: 89
Date: 2023-07-01
New Economics Papers: this item is included in nep-env
Note: Revised December 2024. Previous title: “Measuring the Climate Risk Exposure of Insurers.”
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