Volume 17—Insurance

Industry-based Guidance on implementing

Climate-related Disclosures

Volume 17—Insurance

June 2023

IFRS S2

IFRS

® Sustainability Disclosure Standard

International Sustainability Standards Board

This Industry-based Guidance accompanies IFRS S2 Climate related Disclosures (published

June 2023; see separate booklet) and is issued by the International Sustainability

Standards Board (ISSB).

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IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

Introduction

This volume is part of the Industry-based Guidance on Implementing IFRS S2 Climate-related

Disclosures. This guidance suggests possible ways to apply some of the disclosure requirements in

IFRS S2 but does not create additional requirements.

This volume suggests possible ways to identify, measure and disclose information about

climate-related risks and opportunities that are associated with particular business

models, economic activities and other common features that characterise participation in

this industry.

This industry-based guidance has been derived from Sustainability Accounting Standards

Board (SASB) Standards, which are maintained by the International Sustainability

Standards Board (ISSB). The metric codes used in SASB Standards have been included for

ease of reference. For additional context regarding the industry-based guidance contained

in this volume, including structure and terminology, application and illustrative

examples, refer to Section III of the Accompanying Guidance to IFRS S2.

IFRS S2 INDUSTRY-BASED GUIDANCE

Volume 17—Insurance

Industry Description

The Insurance industry provides both traditional and non-traditional insurance-related

products. Traditional policy lines include property, life, casualty and reinsurance. Non-

traditional products include annuities, alternative risk transfers and financial guarantees.

Entities in the insurance industry also engage in proprietary investments. Insurance

entities generally operate within a single segment in the industry, for example, property

and casualty, although some large insurance entities have diversified operations.

Similarly, entities may vary based on the level of their geographical segmentation.

Whereas large entities may underwrite insurance premiums in many countries, smaller

entities generally operate in a single country or jurisdiction. Insurance premiums,

underwriting revenue and investment income drive industry growth, while insurance

claim payments present the most significant cost and source of uncertainty for profits.

Insurance entities provide products and services that enable the transfer, pooling and

sharing of risk necessary for a well-functioning economy. Insurance entities, through

their products, can also create a form of moral hazard, reducing incentives to improve

underlying behaviour and performance, and thus contributing to sustainability-related

impacts. Like other financial institutions, insurance entities face risks associated with

credit and financial markets. Within the industry, regulators have identified entities that

engage in non-traditional or non-insurance activities, including credit default swaps (CDS)

protection and debt securities insurance, as being more vulnerable to financial market

developments, and therefore more likely to amplify or contribute to systemic risk. As a

result, some insurance entities may be designated as Systemically Important Financial

Institutions, thus exposing them to increased regulation and oversight.

Note: Topics and metrics regarding sustainability issues associated with the provision of

health insurance are outlined in the Managed Care (HC-MC) industry.

Sustainability Disclosure Topics & Metrics

Table 1. Sustainability Disclosure Topics & Metrics

TOPIC

METRIC

CATEGORY

UNIT OF

MEASURE

CODE

Number of policies in force, by segment: (1) property and

casualty, (2) life, (3) assumed reinsurance 21

Quantitative

Number

FN-IN-000.A

Incorporation of Environmental, Social and Governance Factors

in Investment Management

Topic Summary

Insurance entities must invest capital to preserve accumulated premium revenues

equivalent to expected policy claim pay-outs and maintain long-term asset-liability parity.

Because environmental, social and governance (ESG) factors increasingly have a material

impact on the performance of corporations and other assets, insurance entities

increasingly must incorporate these factors into their investment management. Failure

to address these issues may diminish risk-adjusted portfolio returns and limit an entity’s

ability to issue claim payments. Entities, therefore, should enhance disclosure on how

they incorporate ESG factors, including climate change and natural resource constraints,

into the investment of policy premiums and how they affect the portfolio risk.

Note to FN-IN-450a.1 – The entity shall describe climate-related scenarios used, including the

critical input parameters, assumptions and considerations, analytical choices, and time frames,

in calculation of the PML.

Note to FN-IN-450a.2 – The entity shall discuss how climate change-related impacts and

variability of weather-related losses impact the cost of reinsurance and the entity's approach to

transferring risk through reinsurance.

Note to FN-IN-000.A – The entity additionally may disaggregate the number of policies in force

by product line.

IFRS S2 INDUSTRY-BASED GUIDANCE

Metrics

FN-IN-410a.2. Description of approach to incorporation of environmental, social

and governance (ESG) factors in investment management processes and

strategies

The entity shall describe its approach to incorporation of environmental, social

and governance (ESG) factors in its investment management processes and

strategies.

1.1

The definition of incorporation of ESG factors is aligned with that of the

Global Sustainable Investment Alliance (GSIA) and includes the use of ESG

information in the investment decision-making processes.

1.2

The PRI Reporting Framework—Main definitions 2018, section ‘ESG issues’,

provides examples of ESG factors/issues.

1.3

Incorporation of ESG factors includes the following approaches, consistent

with the PRI Reporting Framework—Main definitions 2018:

1.3.1

Screening, including a) negative/exclusionary, b) positive/best-in-

class and c) norms-based

1.3.2

Sustainability-themed investment, defined as investment in themes

or assets specifically related to sustainability (for example, clean

energy, green technology or sustainable agriculture)

1.3.3

Integration of ESG, defined as the systematic and explicit inclusion

of material ESG factors into investment analysis and investment

decisions

1.3.4

A combination of the approaches.

The entity shall describe regulatory requirements to which it is subject that limit

the types of allowable investments the entity may make, as well as the allowable

credit and equity risk to which the entity may be exposed.

2.1

The description of the entity’s approach to incorporation of ESG factors in

its investment management processes and strategies shall be provided in

the context of the regulatory environment to which the entity is subject.

The entity shall describe policies that determine its approach to incorporation of

ESG factors in its investment management processes and strategies.

The entity shall describe how it implements ESG incorporation practices.

4.1

The discussion shall include:

4.1.1

Parties responsible for day-to-day incorporation of ESG factors

4.1.2

Roles and responsibilities of employees involved

4.1.3

Approach to conducting ESG-related research

4.1.4

Approach to incorporating ESG factors into investment strategies

The entity shall describe its oversight/accountability approach to the

incorporation of ESG factors.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

5.1

The discussion shall include:

5.1.1

Formal oversight individuals or bodies involved

5.1.2

Roles and responsibilities of employees involved

5.1.3

Criteria used in assessing the quality of ESG incorporation

The entity shall discuss whether it conducts scenario analysis or modelling in

which the risk profile of future ESG factors at the portfolio level is calculated.

6.1

ESG factors may include climate change, natural resource constraints,

human capital risks and opportunities, and cybersecurity risks.

The entity shall discuss ESG factors that it considers apply broadly in terms of

their impact on sectors and industries, as well as the factors it deems as sector- or

industry-specific.

The entity shall describe whether it incorporates ESG factors in strategic asset

allocation or allocation of assets between sectors or geographical markets.

The entity shall describe how it incorporates ESG factors into the assessment of

and influence the entity’s perspectives on:

9.1

Time horizon of investments

9.2

Risk and return profiles of investments

9.3

Traditional fundamental factors such as economic conditions, central bank

policy, industry factors, and geopolitical risks

Where relevant, the entity shall discuss how it incorporates ESG factors in

selecting external fund managers and fiduciary managers.

10.1

The entity shall describe its oversight/accountability approach to assessing

the quality of the incorporation of ESG factors by external fund managers

and fiduciary managers, which includes:

10.1.1 Formal oversight individuals or bodies involved

10.1.2 Roles and responsibilities of employees involved

10.1.3 Criteria used in assessing the quality of ESG incorporation

Where relevant, the description of the entity’s approach to incorporation of ESG

factors in its investment management activities shall be disaggregated by asset

class or by style employed.

11.1

The discussion shall include, but is not limited to, the differences in the

entity’s approaches to incorporation of ESG factors in:

11.1.1 Public equity, fixed income, private equity or alternative asset

classes

11.1.2 Passive versus active investment strategies

11.1.3 Fundamental, quantitative and technical analyses of investments

IFRS S2 INDUSTRY-BASED GUIDANCE

Policies Designed to Incentivise Responsible Behaviour

Topic Summary

Advances in technology and the development of new policy products have allowed

insurance entities to limit claim payments while encouraging responsible behaviour. The

industry is subsequently in a unique position to generate positive social and

environmental externalities. Insurance entities can incentivise healthy lifestyles and safe

behaviour as well as develop sustainability-related projects and technologies, such as

those focused on renewable energy, energy efficiency and carbon capture. As the

renewable energy industry continues to grow, insurance entities may seek related growth

opportunities by underwriting insurance in this area. Additionally, policy clauses may

encourage customers to incorporate environmental, social and governance (ESG) factors

to mitigate overall underwriting portfolio risk, which may reduce insurance pay-outs

over the long term. Therefore, disclosure on products related to energy efficiency and low

carbon technology, as well as discussion of how entities incentivise health, safety or

environmentally responsible actions or behaviours, may assist investors in assessing how

insurance entities incentivise responsible behaviour.

Metrics

FN-IN-410b.1. Net premiums written related to energy efficiency and low carbon

technology

The entity shall disclose the net premiums written for policies related to energy

efficiency and low carbon technology, including renewable energy insurance,

energy savings warranties, and carbon capture and storage insurance.

1.1

The disclosure scope includes policies that can be demonstrated to absorb

environmental risks, thereby enabling sustainability-related projects,

technologies and activities.

1.2

Renewable energy insurance may range from specialised protection

against natural hazards or mechanical breakdowns to insurance against

fluctuations in the availability of wind or solar radiation.

1.3

Energy savings warranties insure the energy savings guaranteed by Energy

Services Entities (ESCOs) for building retrofitting and other energy

efficiency projects.

The disclosure scope shall include policies in which the insurer has priced and

identified separately such net premiums in its customer billing.

FN-IN-410b.2. Discussion of products or product features that incentivise health,

safety or environmentally responsible actions or behaviours

The entity shall describe how it incentivises health, safety or environmentally

responsible actions or behaviours through incorporation of clauses in the

insurance policies sold to clients and through pricing structure of the policies.

1.1

The scope of disclosure includes policies underwritten in the Property &

Casualty (P&C) and Life segments and excludes Health Insurance policies.

1.2

The scope of disclosure includes the consumer insurance segment and the

commercial insurance segment:

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

1.2.1

The consumer segment includes homeowners, automotive,

supplemental health and accident, and other personal insurance.

1.2.2

The commercial segment includes casualty (for example, liability,

workers’ compensation), property, specialty (for example, crop,

marine, political risk) and financial (for example, errors and

omissions, fiduciary liability) insurance.

Disclosure shall include a description of the aspects of traditional products that

incentivise health, safety or environmentally responsible actions or behaviour.

Such aspects may include:

2.1

Premium discounts for green buildings

2.2

Premium discounts for improving resource efficiency of properties

2.3

Actuarially adjusted premiums for the use of low-emission vehicles, fuel-

efficient non-hybrid vehicles or alternative-fuel vehicles

2.4

Premium discounts for safer driving and lower use of personal vehicles

2.5

Premium discounts for healthy behaviour (healthy diet, routine exercise,

weight loss, giving up smoking/drinking).

The entity may disclose quantitative measures related to performance on

underwriting

products

with

clauses

incentivising

healthy,

safe

environmentally responsible actions or behaviour, such as:

3.1

Number of policies incorporating such clauses

3.2

Amount of premiums generated from the relevant products

3.3

Quantitative measures of the associated social and environmental factors

influenced through products (reduction in the amount of car accidents

involving policyholders, amount of exercise hours per week, average

amount of weight lost by a policyholder).

Physical Risk Exposure

Topic Summary

Catastrophic losses associated with extreme weather events will continue to have a

material, adverse effect on the Insurance industry. The extent of this effect may evolve as

climate change increases the frequency and severity of both modelled and non-modelled

natural catastrophes, including hurricanes, floods and droughts. Failure to appropriately

understand environmental risks, and price them into the underwritten insurance

products, may result in higher-than-expected claims on policies. Therefore, insurance

entities that incorporate climate change considerations into their underwriting process

for individual contracts, and well as the management of entity-level risks and capital

adequacy, may be better positioned to create value over the long-term. Enhanced

disclosure of an entity’s approach to incorporating these factors, in addition to

quantitative data such as the probable maximum loss and total losses attributable to

insurance pay-outs, may provide investors with the information necessary to assess

current and future performance on this issue.

IFRS S2 INDUSTRY-BASED GUIDANCE

Metrics

FN-IN-450a.1. Probable Maximum Loss (PML) of insured products from weather-

related natural catastrophes

The entity shall disclose the Probable Maximum Loss (PML) of insured products

from natural peril catastrophe events.

1.1

PML is defined as the anticipated value of the largest monetary loss

affecting the entity’s insurance portfolio that could result from weather-

related natural catastrophes and is based on catastrophe modelling and

exceedance probability (EP).

1.2

The disclosure scope of natural peril catastrophic events includes:

hurricanes (typhoons), tornadoes, tsunamis, floods, droughts, extreme

heat and winter weather.

The entity shall disclose the PML using, at a minimum, three likelihood of

exceedance scenarios: (1) 2% (1-in-50); (2) 1% (1-in-100); (3) 0.4% (1-in-250).

2.1

The entity may disclose additional likelihood of exceedance scenarios.

The entity shall disaggregate the PML by geographical location.

The entity shall report the PML amount on gross and net of catastrophe

reinsurance bases.

4.1

The gross PML is the gross probable maximum loss for natural peril

catastrophic events (prior to reinsurance) for annual aggregate exposure to

all risks, including reinstatement premiums for the year following the

relevant year based upon the entity’s catastrophe model.

4.2

The net PML is the net probable maximum loss for natural peril

catastrophic events (after reinsurance) for annual aggregate exposure to all

risks, including reinstatement premiums for the year following the

relevant year based upon the entity’s catastrophe model.

Disclosure shall be provided for relevant geographical regions.

The entity may summarise the disaggregation of the PML in the following tables:

Table 3. Gross PML

1-IN-50

1-IN-100

1-IN-250

Hurricanes (Typhoons)

Tornadoes

Tsunamis

Floods

Droughts

Extreme Heat

Winter Weather

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

Table 4. Net PML

1-IN-50

1-IN-100

1-IN-250

Hurricanes (Typhoons)

Tornadoes

Tsunamis

Floods

Droughts

Extreme Heat

Winter Weather

Note to FN-IN-450a.1

The entity shall describe climate-related scenarios used, including the critical

input parameters, assumptions and considerations, analytical choices, and time

frames, in calculation of the PML, as aligned with the Task Force on Climate-related

Financial Disclosures (TCFD) Supplemental Guidance for Insurance Companies.

FN-IN-450a.2. Total amount of monetary losses attributable to insurance pay-outs

from (1) modelled natural catastrophes and (2) non-modelled natural

catastrophes, by type of event and geographical segment (net and gross of

reinsurance)

The entity shall disclose the amount of policyholder benefits paid and claims

incurred during the reporting period resulting from policy losses and benefits

expenses related to modelled and non-modelled natural peril catastrophe events.

1.1

The disclosure scope of natural peril catastrophic events includes:

hurricanes (typhoons), tornadoes, tsunamis, floods, droughts, extreme

heat and winter weather.

Benefits and claims incurred shall be disclosed in accordance with IFRS 17

Insurance Contracts.

The entity shall disaggregate policy losses and benefits expenses for modelled and

non-modelled natural peril catastrophe events.

3.1

Modelled natural catastrophes are typically large-scale events, such as

hurricanes and earthquakes, that the entity has analysed using a

catastrophic risk model.

3.2

Non-modelled events are typically smaller-scale events, such as floods,

droughts, snowstorms and tornadoes, that the entity has not analysed

using a catastrophic model (CAT model).

3.2.1

CAT models are probabilistic mathematical models that simulate

hazardous events and estimate the associated potential damages

and insured losses. They may be conducted by the entity or by a

third party on behalf of the entity.

The entity shall disaggregate policy losses and benefits expenses by geographical

segment.

IFRS S2 INDUSTRY-BASED GUIDANCE

The entity shall disaggregate policy losses and benefits expenses by natural peril

catastrophic events.

5.1

Where relevant, natural peril catastrophic events include: hurricanes

(typhoons), tornadoes, tsunamis, floods, droughts, extreme heat and

winter weather.

The entity shall report the policy losses and benefits expenses on a gross and net

of catastrophe reinsurance base.

6.1

The net amount shall be calculated as the gross amount of policy losses

and benefits expenses from natural peril catastrophe events minus the

recoverables from ceded reinsurance.

The entity shall consider IFRS 17 Insurance Contracts a normative reference, thus

any future updates made to it shall be considered updates to this guidance.

Note to FN-IN-450a.2

The entity shall discuss its strategy around enhancing catastrophe modelling.

The entity shall discuss how climate change-related impacts and variability of

weather-related losses effect the cost of reinsurance and the entity’s approach to

transferring risk through reinsurance.

FN-IN-450a.3. Description of approach to incorporation of environmental risks into

(1) the underwriting process for individual contracts and (2) the management of

entity-level risks and capital adequacy

The entity shall describe its approach to incorporation of environmental risks into

both individual policyholder contracts and entity-wide assessments of risk.

The entity shall describe the processes for identifying and assessing climate-

related risks on insurance and reinsurance portfolios by geography, business

division or product segments.

2.1

Climate-related risks are defined by the Task Force on Climate-related

Financial Disclosures (TCFD) as:

2.1.1

Physical risks from changing frequencies and intensities of

weather-related perils

2.1.2

Transition risks resulting from a reduction in insurable interest

because of a decline in value, changing energy costs or

implementation of carbon regulation

2.1.3

Liability risks that could intensify due to a possible increase in

litigation

The entity shall describe what it considers to be the relevant short-, medium- and

long-term horizons in the context of the underwriting process for individual

contracts as well as the management of entity-level risks and capital adequacy.

The entity shall describe specific climate-related risks for each time horizon

(short, medium and long term) that the entity considers in the underwriting

process for individual contracts as well as in the management of entity-level risks

and capital adequacy.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

The entity shall describe the process for integration of climate-related risks in

probabilistic mathematical models (catastrophic models).

5.1

Discussion shall include:

5.1.1

The use of new and emerging datasets (for example, for dam burst

risk)

5.1.2

The use of the critical input parameters, assumptions and

considerations, and analytical choices

5.2

Discussion shall be provided in the context of the relevant short-, medium-

and long-term horizons.

The entity shall describe how outputs of catastrophe models inform its

underwriting decisions.

6.1

Discussion shall include:

6.1.1

Development of insurance and reinsurance products which account

for climate-related risks

6.1.2

Pricing of insurance and reinsurance policies

6.1.3

Client selection (for example, the type of events the entity chooses

to cover or not, or geographical markets in which the entity

chooses not to underwrite policies)

6.1.4

Cedent selection (for example, decisions on the amount of risk the

entity chooses to transfer through reinsurance).

6.2

Discussion shall be provided in the context of the relevant short-, medium-

and long-term horizons.

The entity shall describe the process for incorporation of clauses in the insurance

policies sold to clients that incentivise reduction of exposure to climate-related

risks of insured assets through pricing structure of the policies.

7.1

Discussion shall include incentives such as:

7.1.1

The use of sustainable building materials

7.1.2

Enhancement of the weather resiliency of properties

7.1.3

Coverage of properties in communities with building codes

requiring climate-risk adaptations

The entity shall discuss the process for integration of environmental risks into

entity-wide assessments.

8.1

Discussion shall include:

8.1.1

Consideration of risks by segment (for example, life versus property

and casualty)

8.1.2

Capital adequacy

8.1.3

Contingency planning for market failure (from many disaster-

related claims)

IFRS S2 INDUSTRY-BASED GUIDANCE

8.1.4

Use of alternative risk transfer (for example, catastrophe bonds,

weather derivatives).

8.2

Discussion shall be provided in the context of the relevant short-, medium-

and long-term horizons.

The entity may discuss how sustainability risks are integrated into its use of an

enterprise risk management (ERM) framework, such as the Committee of

Sponsoring Organisations of the Treadway Commission (COSO) Enterprise Risk

Management–Integrated Framework.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

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