Climate risk is an ever-increasing concern for insurers but its impact on their assets is still not fully understood.

As a response to increased interest in environmental, social and governance (ESG) investing, Conning released its Climate Risk Reporting Service to the market in 2020, which concentrates on the asset side of the balance sheet.

The product includes some noteworthy developments. For example, a stochastic market-risk-modelling overlay technique to incorporate climate scenario analysis into existing insurance risk models; a financial damage function enabling users to investigate the effect of different climate impacts on risk metrics (e.g. VaR) at different time horizons; a new analytic, "Excess Climate Risk", which quantifies the physical and transition risk in a particular asset allocation relative to a benchmark; and a consistent and accessible reporting framework which can incorporate any defined stress test as its basis.

Conning's top-down approach reduces the need for costly security-level data and large numbers of skilled human resources to define the climate risk problem, making the service highly cost effective.

Currently it has scenarios on 21 economies, including in North and South America, Europe, the Middle East and Asia-Pacific.

"We believe we are the first to combine climate risk with economic scenario generation with this novel approach of extending a damage function from the climate literature to market risk," the asset manager said.