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Assessing the Impact of Climate Risk Stresses on Life Insurance Portfolios

Author

Listed:
  • 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)

  • Shang Han Lin

    (Department of Actuarial Studies and Business Analytics, Macquarie University, Sydney, Australia)

  • Hui Francis

    (Research School of Finance, Actuarial Studies and Statistics, Australian National University, Canberra, Australia)

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.

Suggested Citation

  • Dong Michelle & Bruhn Aaron & Shang Han Lin & Hui Francis, 2024. "Assessing the Impact of Climate Risk Stresses on Life Insurance Portfolios," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 18(1), pages 87-114, January.
    • Handle: RePEc:bpj:apjrin:v:18:y:2024:i:1:p:87-114:n:1
    DOI: 10.1515/apjri-2023-0010
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