Sustainability Report 2021 04.4 Strategy resilience, stress-tests and climate scenario analysis 01 Introduction 04.4.2 Top-down qualitative risk For the first round qualitative risk assessment, Result of analysis assessment for retail P&C we decided to keep the scope of the exercise 02 Measuring and straightforward with regards to lines of business Line of business Time horizon Divergent Net-Zero Current Policies managing sustainability Given their business focus and flexibility, and time horizons. Participants were asked to give Motor retail Short- to mid-term Negative Neutral we consider qualitative approaches as suitable their assessments for the retail motor and property 03 Strengthening tools to identify risks and opportunities as well lines of business and for two time horizons (2022 Long-term Negative Negative our foundation as response options from a strategic angle. to 2030 and 2031 to 2050). The survey was limited Property retail Short- to mid-term Positive Neutral They allow us to explore in principle a rich set of to Europe, our main market. Giving participants a Long-term Positive Positive 04 Climate-related transmission channels and interdependencies better understanding of how the scenarios might financial disclosure that do not have to be hardwired from the affect the business environment, we augmented 04.1 Highlights outset. Here, we report on a pilot survey- NGFS data with specific business drivers such Transition risks under the different scenarios can the transitions risks) which require corresponding 04.2 Governance based assessment covering our major P&C as the numbers of electric vehicles or targets for be further differentiated into three categories: insurance cover and offer new opportunities. 04.3 Strategy retail lines of business which we launched as retrofitting buildings. policy, technological and consumer preferences. Furthermore, increased NatCat risks are likely 04.4 Strategy resilience, stress-tests and part of our first iteration towards building a Risks and opportunities from climate change All three will weigh on future premium growth to lead to higher premiums. On the profitability climate scenario analysis comprehensive qualitative risks and opportunities were assessed on a four-point scale based on and profitability in retail motor. Higher carbon side, the picture is more nuanced. More extreme 04.5 Risk and opportunity management assessment framework. qualitative criteria such as shrinking markets, prices, for example, will translate into higher weather events will lead to rising claims, 04.6 Targets and metrics higher claims, dwindling reinsurance capacity or mobility costs. At the same time, expected high but pricing and portfolio steering should be Methods, assumptions and limitations changes that increase the market’s susceptibility public investments should make public transport able to neutralize the impact on the bottom line. 05 Our universal principles The Network for Greening the Financial System to disruption, also considering efforts that need to more attractive. Consumers will react to these Turning to the scenario ‘Current Policies (3.0˚C)’, (NGFS) provides six scenarios with differing levels be undertaken to adapt to a changing business shifts by reducing car ownership and individual assessments are similar, but transition impacts of physical and transition risks. For the qualitative environment. Ratings were established for volume mobility. These trends are likely to accelerate are seen generally as less severe; this is in risk assessment, we have chosen the two ‘extreme’ and profitability impacts as well as overall after 2030. For Allianz, technological change particular true for the short- to mid-term time scenarios of ‘Divergent Net-Zero’ and ‘Current consequences. The subsequent assessment of is the main driver for declining profits in motor horizon. As policies stay more or less unchanged, Policies’ to present two clearly distinguishable requirements towards risk mitigation considers retail, i.e., higher loss ratios. Although frequency the trends of less individual mobility and more development paths to the participants of the whether effective mitigation is provided by of claims might decline thanks to better climate efficient buildings will unfold more slowly. survey. ‘Divergent Net-Zero’ is characterized business-as-usual risk management practices, technologies, this is more than offset by severity, Therefore, the qualitative risk assessment expects by ambitious and immediate, but rather un- such as re-pricing or reinsurance, or whether i.e., higher costs for repairs and spare parts. almost no change in the business environment coordinated climate policies. The net-zero target extraordinary measures such as a business-line Over the long-term, this should be reflected in until 2030. Only after this the impact of these will be reached in 2050; physical risks will be low exit need to be taken, and whether a strategy on pricing and then technological impact turns trends will be felt, and in the same direction as in as compared to scenarios with more severe global how the business might respond to the risk has neutral. Physical risks like extreme weather events the ‘Divergent Net-Zero (1.5˚C)’ scenario (negative warming, but the lack of policy coordination already been elaborated. Ratings are commented are assessed to have only a minor impact on for retail motor due to declining premium volume across sectors results in rather high transition for proper contextualization of the survey claims in the motor business. and positive for retail property through rising costs, compounded by fast technological change. participants’ choices. While the ‘Divergent Net-Zero (1.5˚C)’ scenario premium volume). For the bottom line, profitability The scenario ‘Current Policies’, on the other is expected to have a clearly negative impact on impacts from more extreme weather events are hand, assumes that only currently implemented Results the retail motor business, the story is different for seen as rather neutral for both lines of business, policies are preserved, implying relatively slow We show a summary of results of the pilot retail property. Here, an overall positive impact even over the longer time horizon. This also technological change and low transition risks assessment, which was performed by the is expected, in particular for top-line growth, applies to the ‘Divergent Net-Zero (1.5˚C)’ but high physical risks; by end of the century, Allianz SE Global P&C leadership team, in the i.e. Gross Written Premium. The main drivers are scenario for the same reasons. global warming will exceed 3°C. following table. new standards for buildings (the policy aspect of 76