The Central Bank of South Africa plans to expand the scope of its climate risk review to the insurance industry to address threats that could have a profound impact on the economy. Vice Governor Fundi Tshazibana said that after conducting climate stress tests on the banking industry this year, the next step will focus on the insurance industry. The relevant report will be released together with the “Financial Stability Assessment” on June 19th.
Climate events are posing multiple challenges to the South African economy. Tshazibana pointed out that up to 60% of the credit risk exposure in bank loans is related to borrowers with climate-related risks. The floods in 2022 caused losses of 54 billion rand (3 billion US dollars), while the severe drought led to a 10-percent-point increase in food prices and pushed up overall inflation by 3 percentage points.
The threat of compound climate disasters is increasingly prominent, such as the Table Mountain fire in Cape Town and the deadly floods in recent years. Tshazibana emphasized that climate risks are multi-faceted. They not only directly impact the insurance industry but may also be transmitted to the overall economy through agriculture, tourism and inflation, and a comprehensive assessment and response are needed.
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