The Treasury Department's Federal Insurance Office wants life insurance companies to take a look at what climate change could do to their $1 trillion in real estate-related assets.
Six banks have already worked with the Federal Reserve System to test what floods, hurricanes, wildfires and other climate-related calamities could do to their portfolios of real estate, mortgages and mortgage-backed securities, officials say in a new report on insurance supervision and regulation of climate-related risks.
FIO officials suggest in the report that insurance regulators should help life insurers do something similar with their investment portfolios.
"Real estate may be vulnerable to credit risk if increases in the frequency and severity of climate-related disasters lead to a decrease in borrowers' ability to repay or service their debt and/or to declines in real estate asset values," officials warn.
What It Means
Real estate-related assets directly and indirectly support your clients' life insurance policies and annuities.
FIO officials wonder what climate change could do to those assets.
Federal Insurance Office
Congress created the Federal Insurance Office when it was drafting the Dodd-Frank Act.
States handle most regulation of insurers.
FIO is supposed to help federal financial services monitor insurers and avoid a repeat of the kind of conditions that contributed to the 2007-2009 Great Recession, when problems with derivatives trading at an arm of American International Group shook the world's financial system.
