Three Risks Facing the EU (and the U.S.)

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The following is from the closing remarks by Mr François Villeroy de Galhau, Governor of the Bank of France and Chairman of the Autorité de contrôle prudentiel et de resolution (ACPR), at the 10th international conference on insurance, Paris, 26 October 2018.

In the short term, Brexit is, alas, the issue that will keep us busiest. The ACPR is working actively to ensure a smooth transition, but the time has come for insurers to set their contingency plans in motion. That means talking with supervisors in the UK and Europe. It will also mean getting new authorisations, transferring portfolios, relocating European companies and setting up third-country branches. Even if we hope to avoid it, we must be ready for a no-deal scenario. In this respect, it would be preferable to have European legislation in place to ensure that every relevant issue is dealt with in a harmonised manner; however, if need be, and as a backstop, the enabling legislation presented to the Council of Ministers on 3 October will allow us to take legal steps in France to manage - for those individuals insured in France - situations where UK firms have not already transferred their contract portfolios. I would like to mention that joint work by the European Central Bank and the Bank of England to assess financial risks looked specifically at insurance contracts, and we believe the risks in this area to be manageable, provided we can properly guarantee the protection of policyholders.

In the medium term, against the backdrop of the digital revolution, cyber-security is a growing concern for all businesses. Insurers are of course among the main ones affected because they hold sensitive data. Your industry would certainly be well advised to draw on your experience with cyber-risk to build up your own cyber-insurance offering.

I come last to climate risk, which occupies the longest time horizon of all, but which nevertheless requires tangible action to be taken right now. As today's discussions have shown, the natural disaster insurance regime needs an overhaul and I know that reforms are coming in 2019. But this is also a very important area of investigation for supervisors because, over the long run, climate stability is a determining factor in financial stability. In June of this year, the ACPR published a study revealing that an estimated 10-20% of all securities held by French insurers are exposed to risk in relation to the transition to a low-carbon economy. The Banque de France and the ACPR have set up and are actively coordinating the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Launched in Paris last December, the NGFS started out with eight trailblazing supervisors but has since grown to include 19 members and five observers, including the Sustainable Insurance Forum (SIF). We are working hard on two subjects where insurers are in the vanguard: disclosure of current climate risks and the projection of dynamic stress tests based on future risks. A report detailing the network's first year of work and making recommendations will be presented at a conference in Paris on 17 April next year.