Insurance Climate Change and The Law


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Climate-related impact investment and stewardship

The insurance business model is inextricably linked to investment activities by insurers. The main reason for that is that insurance premiums tend to be paid upfront, while the insurer's liability to pay a claim or other benefits is contingent upon the occurrence of an insured loss or a specified event which may not occur until several months or even years later or may not occur at all. Given this time lag – also referred to as an inverted production cycle – the insurer must make provisions for future claims payments under accounting and regulatory standards. They will do so by holding assets matching their technical provisions and their solvency capital requirements.1 Rather than just setting aside cash, insurers invest the premium into assets that generate a return as a way of protecting the value of the premium against inflation. Depending on the duration and predictability of their exposure, insurers will adopt different investment strategies.

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