This EU framework regulates the EU insurance sector pertaining to the solvency capital requirement (SCR); the amount of capital that insurance firms must hold as protection to reduce the risk of insolvency, up to the statistical level of a 1-in-200 year event (a 99.5% confidence they can cope with the worst kinds of losses over a year)). And the minimum capital requirement (MCR), below which policy holders are exposed to unacceptable risk.
Currently, climate change, sustainability, covid-19 resiliency and post pandemic shocks are some themes that are growing as concerns that can have an outsized impact on assets, portfolios and balance sheet liabilities. Proposals are currently being considered to build in further risk mitigations, compliance monitoring, audit/governance, penalties on brown assets (that pollute or are not sustainable) etc. by reforming Solvency II.
With Billions of dollars under asset management at various insurance firms; monitoring or attributing climate temperature rise (in fractions of a degree) against the insured assets, could result in non-compliance costs/penalties that are substantial, including denial, suspension or revocation of insurance licenses, cancelled investor distributions. Or even force sanctions on insurance holding companies.