Climate-related risks are addressed as part of an overarching qualitative and quantitative risk reporting and controlling framework. Early-warning indicators are monitored and regularly reported to senior management including risk dashboards, risk capital allocation, and limit consumption reports, where climate aspects become material. The Allianz Risk Capital Model assesses, amongst many other criteria, NatCat events for the upcoming year on subsidiary and Group level. The yearly Top Risk Assessment (TRA) has the goal to identify and remediate significant threats to financial results, operational viability, reputation and delivery of key strategic objectives, regardless whether quantifiable or or not, and is being conducted both on the level of operating entities and the Group. Supplemented by quarterly updates, senior management decides on a risk-management strategy and related actions. Climate-related factors are included in TRAs.
Each operating entity is responsible for controlling its exposure to individual catastrophes and defining its local reinsurance requirements, based on its local risk appetite and capital position. The respective cover is provided by Allianz SE or subsidiaries. At Group level, the Allianz SE Board reviews and approves the risk appetite. The reinsurance division is responsible for designing and implementing Group catastrophe protections within given exposure limits. These covers take various forms and aim to protect the Group against excessive losses from major NatCats.
Special modeling techniques for NatCats combine portfolio data with simulated natural disaster scenarios to estimate magnitude and frequency of potential losses. Where such models do not exist, we use deterministic, scenario-based approaches. We are continuously testing several dozens of NatCat scenarios, including atmospheric events, mapping a range of perils and regions. Results provide the basis for Group-wide risk monitoring, risk limits and subsequent business decisions. Selected stress scenario analysis on NatCat risks are used in risk steering. NatCat models are regularly updated according to newest scientific information. We are continuously improving the inclusion of global NatCat hazard information, including climate, into underwriting decisions.
Our ESG approach applies Group-wide corporate rules and ESG instruments across all underwriting, investment, and asset management activities. We also rely on external providers for data related to climate, ESG and reputational risks.
Our climate team within the CR department works on early identification, measurement and business integration of risks and opportunities from physical climate change and the low-carbon transition.
Additional processes include NGO dialogue, AGCS Risk Barometer, Global Claims Review, and on-going dialogue with policy makers, NGOs and academia on economic, governmental and societal issues.
For proprietary investments, the ESG Functional Rule for Investments provides the foundation of integrating climate-related issues, comprising asset manager selection and systematic integration of climate and ESG factors into investment decisions. Portfolio-wide ESG assessment processes and data, including climate and carbon data, enable continuous monitoring and steering of performance at security and portfolio level. For listed assets, we use ESG scores and climate indicators to manage risks and opportunities in our proprietary portfolio. If assets score below defined thresholds, further investigation is mandatory under central monitoring, leading to a variety of potential measures, including engagement with respective companies.