Category: Climate insurance · Reviewed by Taylor Watts, Broker · New Business · Last reviewed 2026-06-10
Climate stress test insurance is the regulatory practice of subjecting UK insurer balance sheets — both general insurance and life — to forward-looking climate scenarios in order to assess solvency, underwriting and investment resilience. The principal UK exercises are the Bank of England Climate Biennial Exploratory Scenario (CBES) of 2021-22 and the PRA Insurance Stress Test (IST) suite.
Category: Climate insurance Also known as: Insurance climate stress testing; Climate scenario analysis insurance; Insurer climate stress test Established / Date: Bank of England CBES launched June 2021; results published 24 May 2022 Related concepts: PRA climate stress test, Bank of England climate stress test, NGFS
Climate stress testing for insurance assesses the financial impact on insurer balance sheets of one or more climate scenarios over a multi-decadal horizon. Inputs include physical hazard projections (windstorm frequency, flood return periods, sea-level rise), transition pathways (carbon prices, sectoral demand changes, technology costs) and macroeconomic outputs (GDP, equity prices, credit spreads). Outputs include claims, premiums, investment losses, capital ratios and Solvency Capital Requirement (SCR) movements.
The Bank of England’s CBES, launched in June 2021 with results published on 24 May 2022, applied three NGFS-aligned scenarios — early action, late action and no additional action — across a 30-year horizon to the seven largest UK banks and the largest UK general insurers and life insurers.[1] The PRA’s Insurance Stress Test 2022 incorporated climate-specific elements and has been followed by successor general and life IST exercises.
Climate stress testing is distinct from but complementary to the firm’s own scenario analysis under SS 3/19 and the Own Risk and Solvency Assessment (ORSA).
The PRA’s authority derives from s.2B Financial Services and Markets Act 2000 (insurance objective) and the firm-specific powers under the Solvency II regime as onshored into UK law. Supervisory Statement SS 3/19 (April 2019) requires PRA-authorised insurers to use forward-looking climate scenario analysis in their ORSA, with the July 2020 “Dear CEO” letter setting expectations for full embedding by end-2021.[2]
The Bank of England Financial Policy Committee called for the CBES at its March 2020 meeting, with the methodology published in June 2021 and final results on 24 May 2022.[1] The PRA Insurance Stress Test 2022 was published in May 2022 with results in December 2022; the IST 2025 cycle continues the climate component using NGFS Phase IV scenarios published in November 2023.[3]
The Senior Managers and Certification Regime allocates accountability for climate risk to the Senior Manager Function holder identified in the firm’s SS 3/19 statement.
UK general insurers, life insurers and Lloyd’s managing agents have built climate scenario modelling capability over 2019-2024, typically using vendor catastrophe model uplifts (Verisk, RMS, CoreLogic) for physical hazards and NGFS macro outputs (downloaded from the NGFS Scenario Portal) for transition pathways. Internal model firms incorporate climate stresses into their Solvency II internal model, and standard formula firms reflect them through stress and scenario testing in the ORSA.
Lloyd’s published its first ESG Report in December 2020 and has incorporated climate stress testing into the Capital Coverage Ratio review for syndicates. The Association of British Insurers and the International Underwriting Association have published guidance on practical scenario analysis. The CBES May 2022 results indicated that, while UK insurers and banks could manage projected losses, profits would be reduced and insurance protection gaps could widen.
For UK insurance buyers the effect of climate stress testing is felt indirectly. Insurers translate scenario outputs into pricing, capacity, exclusions and capital allocation. Sectors stress-tested most heavily — fossil fuel extraction, coastal property, agriculture — see appetite tighten over time. SMEs may notice flood deductibles rising in postcodes flagged under 2°C and 4°C scenarios.
Boards of insurance-buying companies should be ready to discuss their own climate scenario analysis when negotiating D&O, financial lines and large property programmes. Listed insureds will already be producing scenario disclosures under s.414CB Companies Act 2006 and IFRS S2.
A FTSE 250 logistics group with port-side warehouses participates in its insurer’s submission for the 2025 Insurance Stress Test cycle. The insurer requests geocoded asset data, BI dependencies and adaptation investments. The group’s adaptation programme — flood barriers, raised plant, alternative routing — reduces the modelled loss under the NGFS Net Zero 2050 and Delayed Transition pathways, and the insurer offers a 5% rate reduction at renewal with a 24-month BI indemnity period.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email info@apexinsurancebrokers.co.uk, or request a quotation.
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