BoE’s Climate Exploratory Scenario

Based on banks’ and insurers’ projections of climate losses in the Climate Biennial Exploratory Scenario (CBES) exercise, the estimated costs to large UK financial institutions from climate change appear manageable considering the BoE's plausible representations of what might happen.

This assessment of the exercise was presented by DBRS Morningstar in its summary of the first of its kind exercise on the potential adverse effect on the UK economy of the collective banks’ and insurers’ net-zero plans. It also highlighted that there are areas for improvement and risks posed by financial institutions' climate strategies to the wider economy.

“Both general and life insurers are subject to reputational risk and social pressure, which is accelerating their exit from carbon-intensive industries, through reduced investing and/or underwriting in these sectors. While the BoE expects insurers could increase the premiums to insure against climate risks, consumers’ affordability of general insurance products could materially deteriorate in the worst-case scenario, leaving many UK households without viable protection”, said Marcos Alvarez, SVP, head of insurance.

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