In line with these new regulatory requirements and our UNIQA sustainability strategy, our objective is to develop an appropriate and consistent approach to take sustainability risks into account and apply it on an ongoing basis and ensure it is up- dated regularly. Incorporating ESG criteria into the risk management assessment process therefore has far-reaching implications. Sustainability acts as a key aspect over the entire risk cycle, i.e. from the identification and assessment of a risk to the controlling and reporting of said risk. This also drives forward the development of ESG indicators in investment and portfolio management as well as the integration of sustainability aspects in third party risk management. Likewise, addressing opportunities from the deep integration of sustainability criteria into our business model is becoming an increasingly important part of our analyses. In the context of climate risks, the increasing weather extremes are particularly relevant for us, as they lead to an increase in the loss ratio and thus also in the default risks. The results of sustainability risk identification and assessment are intended to support management decisions within the framework of the company's product design or investment strategy.
Continuous process optimisation ensures security
In order to identify additional areas of improvement in dealing with sustainability risk and define measures, the UNIQA Group Risk Management team set up a working group in 2021, tasked with monitoring developments in sustainability regulations and their impact on the risk management system. Market best practices are also analysed here as well. The focus in 2021 in particular was on completing a detailed GAP analysis in order to come up with a more precise implementation plan and project objective. This required continuous dialogue between the Group Risk Management and Sustainability Ethics and Public Affairs departments and other affected departments within the UNIQA Group. This resulted in the creation of a clear distribution of roles and responsibilities for the process of integrating sustainability aspects into the risk management system.
Sustainability risks also need to remain controllable
In recent years UNIQA has worked hard on further developing our internal control system (ICS) for risk management. This is used to ensure more efficient processes and reliable reporting. The primary focus in 2021 was on mapping the ICS in an IT solution and starting with the company-wide roll-out. The “Governance, Risk and Compliance” tool was introduced in or- der to support technical implementation within the systems. In the course of the roll-out, our risk database was expanded to include the category of sustainability risks. The aim on the one hand is to capture an overall picture of all sustainability risks, as well as define and document the associated measures on the other hand.
UNIQA pushes quantitative scenario analyses of climate risks
A comprehensive analysis of UNIQA’s investment portfolio was conducted in 2021, based on ESG criteria. This involved assessing the companies in the portfolio in terms of physical risks, such as financial losses and losses owing to extreme weather. The impact of transition risks, i.e. the risks related to the transition to a climate-neutral economy and society, was also evaluated and quantified. This portfolio analysis as well as the risk and solvency assessment of UNIQA itself within the framework of the various climate scenarios proved to be difficult to quantify and is associated with huge uncertainty. In order to comply with the regulatory requirements applicable in 2022, UNIQA is therefore assigning high priority to develop- ing scenario analyses to quantify long-term risk impacts. This process is supported by intensively monitoring best practices in the insurance sector in terms of climate risks, as well as continuously developing scenario analysis methods. The general intention in 2022 is to ensure the management of investment processes is increasingly linked to sustainability targets.