Climate Risk and Regulatory Pressure: What it means for Insurers, and why Actuaries are at the centre of it.
A year ago, ‘climate risk’ was already a familiar phrase in insurance. But in the last 12–18 months (pre 2026) it has shifted from a strategic talking point to a hard operational reality, driven by two forces moving at the same time:
For actuarial teams, this has translated into an expanded remit: beyond pricing and reserving, Actuaries are now expected to help businesses evidence resilience and good decision-making under deep uncertainty.
This article breaks down what’s changed, what’s already improved, what firms should have done by now, and what still needs to happen to keep pace with the regulatory direction of travel.
The loss environment has hardened, and it’s persistent!
The industry is no longer dealing with isolated ‘big cat years.’ Global insured catastrophe losses in 2024 were around USD 137bn, with losses continuing to track a 5–7% real growth trend, driven heavily by floods, wildfires and severe convective storms.
Swiss Re’s analysis points to this trend continuing, with insured losses expected to approach USD 145bn on-trend in 2025 and a 1-in-10 chance of a peak year closer to USD 300bn.
Losses approaching USD 150bn in recent years and a widening protection gap between economic and insured losses.
In plain terms: climate-driven volatility is no longer a ‘tail issue.’ It shows up in year-to-year performance, pricing adequacy, reserving uncertainty and capital planning.
PRA: clearer, more detailed climate risk management expectations (effective from Dec 2025).
In December 2025, the PRA published PS25/25 and a new Supervisory Statement (SS5/25), replacing the earlier SS3/19. It applies to banks and insurers and took effect immediately on publication.
The shift is significant in tone: moving from ‘build awareness’ to ‘embed consistent and effective risk management,’ with more detailed expectations on:
Importantly, commentary around the policy highlights that firms are expected to perform a gap assessment within six months and develop credible plans to close gaps, scaled proportionately to exposure.
Bank of England: climate scenario analysis is now normalised supervisory practice.
The Bank of England continues to position climate scenario analysis and stress testing as a key tool for understanding climate-related financial risks, building on the CBES learning exercise and its focus on both physical and transition risks for banks and insurers.
FCA: climate reporting scrutiny and a push for better decision-useful disclosure.
The FCA has reviewed climate reporting by asset managers, life insurers and FCA-regulated pension providers, and found that its climate disclosure rules have increased firms’ consideration of climate risks and supported integration into decision-making, while also identifying ongoing challenges around data and forward-looking methodologies like scenario analysis.
In plain terms: regulators are no longer asking insurers whether they have heard of climate risk. They are asking whether insurers can prove they understand it, measure it, govern it, and act on it.
Boards and regulators are increasingly challenging: why a parameter is set the way it is, not just what the number is.
This aligns with the PRA’s emphasis on embedding climate risk into risk management and scenario work, supported by evidence and documentation.
Climate scenario analysis has become a natural extension of existing actuarial scenario frameworks but with longer horizons and different uncertainty sources. Industry guidance highlights that the UK’s CBES exercise was a major learning point for many risk teams, and that insurers are now working to translate long-term scenarios into shorter-term stresses that can be used in business decisions.
Both the PRA’s updated expectations (governance, scenario analysis, data) and the FCA’s findings on climate reporting emphasise that firms still face challenges with climate data and consistent methodologies, especially for forward-looking analysis.
Climate risk is now explicitly treated as a balance-sheet issue affecting underwriting liabilities, investments, operations, and potentially litigation risk. The PRA’s framework encourages firms to treat climate risk as a financial risk that must be managed like any other material risk.
If an insurer is aiming to demonstrate strong compliance and maturity, by now it should have:
Completed (or started) a structured climate risk gap assessment
Given the PRA’s updated framework took effect in December 2025 and expects a six-month review and planning period, firms should already be mapping current practices against the new expectations and identifying gaps.
Clarified accountability and governance
The PRA’s updated expectations emphasise board and senior management oversight and embedding climate risk in business models and risk appetite. Firms should have clear ownership, reporting lines, and evidence of challenge and decision-making.
Built a repeatable climate scenario capability
Not ‘one-off’ scenario work, but a repeatable process:
Begun tightening climate data controls
This includes metadata, lineage, controls, and documented limitations because regulators accept that data is imperfect, but they do not accept unmanaged uncertainty. The FCA’s reporting review explicitly highlights data and methodology challenges; the PRA framework strengthens expectations on data practices.
Regulators increasingly care about decision-usefulness: does the climate work actually change underwriting appetite, pricing strategy, reinsurance buying, reserving confidence ranges, capital buffers, or investment strategy? That is the bridge between technical analysis and supervisory confidence.
Climate assumptions used in pricing need to be reconcilable with:
This is why the PRA’s framework stresses integration into risk management rather than siloed ‘ESG reporting.’
The PRA’s updated expectations are principles-based, but that does not reduce the need for evidence. Firms will need a clear audit trail: what was done, why, by whom, and how limitations were handled.
The FCA’s climate reporting review found that disclosures have improved transparency and risk integration, but some outputs are still too complex for retail audiences and there are challenges around scenario comparability and access to product-level information.
Firms should expect further evolution toward more streamlined, decision-useful reporting aligned with international standards.
For actuarial roles, ‘climate risk and regulatory pressure’ means:
Climate risk has become a mainstream insurance risk, and regulators now expect insurers to treat it that way. Loss trends are reinforcing urgency, and the PRA’s updated framework has made it clear that governance, scenario analysis, data and documentation must be demonstrably robust.
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