6 June 2024
Data on climate change is evolving rapidly and there is a risk, when using current published scenarios, that an actuary will underestimate climate risk. That’s the key message from the Institute and Faculty of Actuaries in its Risk Alert issued today (6 June 2024) to all members on climate change scenario analysis.
This builds on the IFoA’s 2022 Risk Alert saying that climate change drives material financial risks and that actuaries should appropriately consider and clearly communicate the impact of climate change in their work. Today’s Risk Alert points to the challenges and limitations that users of scenario analysis should be aware of when interpreting results. In particular, actuaries should note that the climate may change more quickly than some models predict.
Neil Buckley, IFoA Regulatory Board Chair, said: “Scenario analysis has evolved rapidly in financial services and regulators have made it clear that they see it playing a key role in climate-related risk management. This Risk Alert warns that current climate scenarios may not be suitable for financial use without addition or change. We have provided several clear points for actuaries to consider when carrying out climate scenario analysis to help avoid underestimation of climate risk in their work.
“IFoA Risk Alerts are not mandatory guidance and we issue them to support members and the public interest. There is rapid and continual change in data analysis and risk management so it is important for the IFoA to draw attention to specific areas and ask members to think carefully about the consequences of the actions they are taking or not taking.”