Scenario Analysis

CDI engaged Theia Finance Labs and RMI to conduct an analysis of  the investments of insurers licensed in three Pacific coast U.S. states – California, Oregon, and Washington -- based upon financial data from year-end 2021. This report describes the exposure of these investments to fossil fuel and clean, low-emission technologies, the alignment of these investments with a set of future climate scenarios, and the impacts that could arise to profitability of these portfolios in the event of a rapid disorderly transition to meet the goals of the 2015 Paris Agreement. The analysis and results here represent the first climate stress test by U.S. state insurance regulators. The intent of this report is to understand the position of insurers operating in the contiguous Pacific coast states relative to the transition to a low carbon economy, and to demonstrate the utility for companies and regulators of new tools for forward-looking climate risk assessment. It represents just one step in the California Department of Insurance’s long-term strategy for employing and promoting forward-looking climate risk assessments for the insurance sector, and an important collaboration between U.S. state insurance regulators.

Download the Executive Summary of the Report

 

Recording of Webinar on Climate Stress Test of West Coast Insurance Markets (February 6, 2024)

 

In 2023, CDI engaged the University of California Berkeley Center for Law, Energy, and the Environment (CLEE) to assemble a guide, informed by experts and examples from around the world, to developing a long-term strategy for incorporating climate scenario analysis into supervision of California’s insurance sector.

 

The goal of the report is to identify options available to the California Department of Insurance (CDI) as it considers new scenario analysis and stress testing exercises and to offer recommendations for CDI and peer institutions as they begin to structure and implement these exercises. The report focuses primarily on scenario analysis, but many of the goals and principles discussed will apply to both scenario analysis and exploratory climate stress testing.