PRA SS5/25: What every Insurance leader needs to know
When it comes to navigating climate risk and regulation, experience matters.
In this week’s episode, Abhay and Aidan draw on Aidan’s experience in environmental liability and compliance, alongside Abhay’s experience in strategic ESG advisory and frameworks as Head of ESG at Weightmans, to unpack PRA SS5/25 and what it means for the insurance industry.
Together, they explore:
The PRA’s two-step approach to climate risk
Why scenario analysis is replacing reliance on historical data
How climate risk needs to be embedded across the business
What these changes mean for CEOs, CROs, CFOs and Boards
If you’re looking for a practical, experience-led perspective on SS5/25, what it means for insurers, and how firms can prepare, this episode is a must-listen.
Transcript
Aidan:
Welcome to today’s podcast on climate risk management for insurers, where we explore the regulatory and strategic trends shaping the insurance sector.
Today we’re discussing one of the most significant developments in prudential regulation in recent years: PRA Supervisory Statement SS5/25 – Enhancing Banks’ and Insurers’ Approaches to Managing Climate-Related Risks. SS5/25 replaces the earlier SS3/19 framework and reflects the PRA’s expectation that climate risk management moves from awareness and planning into embedded business decision-making.
In our last podcast, we covered the element of defensibility of SS 5/25 gap assessments that the regulator expected in-scope firms to complete by June 3rd. And this podcast, which isn’t just about compliance, explores a bigger question is: Why should CEOs, CROs, CFOs and Boards care?
We would try explaining today why is SS5/25 best understood as a fundamental shift in risk management rather than simply another ESG requirement?
To do this, I’m joined by Abhay, a climate risk specialist, Partner in Weightmans and a trusted insurance sector adviser.
Topic 1 – what has changed?
Aidan:
Let’s start with the basics.
Many insurers spent years preparing for climate disclosures and TCFD reporting. So what’s different about SS5/25?
Abhay:
The biggest shift is that climate risk is no longer being treated as a sustainability issue.
The PRA now expects firms to manage climate-related risks as a core prudential risk, integrated into governance, risk management, scenario analysis, data and strategic decision-making.
Historically, firms often focused on reporting.
SS5/25 asks a different question:
“How does climate change affect the resilience of your business model?”
That’s a much deeper conversation.
The PRA wants insurers to understand how physical risks, transition risks and climate-related litigation risks affect underwriting, reserving, capital, investments, operations and operational resilience.
Topic 2 – two step approach
Aidan:
One area frequently discussed is the PRA’s two-step approach. What does that actually mean?
Abhay:
SS5/25 introduces a very practical framework.
Step One: Identify and assess material climate-related risks.
Firms must identify the transmission channels through which climate risks affect their business and determine what is materially relevant to them. The Board is expected to review and approve those conclusions.
Step Two: Design an appropriate risk management response.
Once material risks have been identified, firms need controls, governance, monitoring and decision-making processes that are proportionate to the level of exposure.
In other words, climate risk isn’t presumed. It must be assessed.
But once identified, it must be managed like any other significant prudential risk.
Topic 3 – Why is this a board issue?
Aidan:
Many insurance professionals still view climate risk as something for ESG teams or sustainability specialists.
Why is that increasingly problematic?
Abhay:
Because SS5/25 explicitly places accountability at Board and senior management level.
The PRA expects Boards to:
Understand climate risk impacts on business models.
Approve risk appetite.
Review material climate risks.
Be informed by scenario analysis.
Receive appropriate management information.
Demonstrate oversight of climate-related decision-making.
In fact, the PRA’s message is clear: Climate risk governance cannot be delegated away.
Just as Boards cannot delegate solvency oversight or operational resilience, they cannot outsource responsibility for climate-related risks.
Topic 4 – The end of “ESG in silos”
Aidan:
So are we moving beyond traditional ESG structures?
Abhay:
Absolutely.
One of the biggest implications of SS5/25 is that climate risk must become integrated into mainstream business processes.
The PRA expects links to:
Underwriting decisions
Capital allocation
ORSA processes
Risk appetite frameworks
Investment activities
Third-party risk management
Operational resilience planning
This is a profound shift, and the sustainability function can support. But it cannot own climate risk on behalf of the business.
Risk, actuarial, underwriting, finance, investments and operations all need to be involved.
Topic 5 – Scenario analysis changes everything
Aidan:
Let’s talk about climate scenario analysis because that seems to sit at the heart of the new regime.
Abhay:
It really does.
One of the most important statements within the PRA guidance is that historical data alone is insufficient when assessing climate risks.
Climate change creates a future that may not resemble the past.
That’s why scenario analysis becomes essential.
The regulator expects firms to understand:
Different climate pathways
Long-term business model impacts
Potential capital consequences
Strategic vulnerabilities
Emerging opportunities
For insurers, that means asking difficult questions:
What happens to property portfolios if flood frequency rises?
How do liability exposures evolve?
What does transition risk mean for carbon-intensive sectors?
Could climate litigation affect claims trends?
These are strategic questions, not just modelling exercises.
Topic 6 – Why senior leaders should care?
Aidan:
For a busy CEO or Board member listening today, what’s the key takeaway?
Why should they personally engage?
Abhay:
Because climate risk increasingly affects four things senior leaders care about most:
Capital
Climate-related risks can affect solvency, capital adequacy and earnings volatility.
Strategy
Market demand, customer expectations and regulatory changes are reshaping insurance markets.
Reputation
Stakeholders increasingly expect firms to demonstrate credible climate governance.
Resilience
Climate-related disruptions can affect operations, suppliers, outsourcing and business continuity.
The firms that view SS5/25 as a compliance exercise may achieve minimum regulatory alignment.
The firms that view it as a strategic risk management framework are more likely to strengthen resilience and improve decision-making.
Topic 7 – The competency challenge
Aidan:
Let’s finish with a topic that often receives less attention: leadership competence.
Abhay:
And yet it’s arguably one of the most important aspects.
Many Boards are asking:
“Do we know enough?”
The regulator doesn’t expect every Board member to become a climate scientist.
But it does expect leaders to understand:
Climate risk drivers
Risk transmission pathways
Scenario analysis outputs
Governance responsibilities
Implications for business strategy and risk appetite.
That means structured education, competency assessments and ongoing learning.
The firms that succeed under SS5/25 will not necessarily have the biggest climate teams.
They’ll have leaders who can ask better questions and make better risk decisions.
Aidan:
So perhaps the key message is this:
SS5/25 is not primarily about climate reporting.
It is about modernising risk management.
It’s about understanding how climate change influences underwriting, capital, operations, investments and business strategy and ensuring Boards are equipped to oversee those risks effectively.
SS5/25 Demands a New Mindset from Insurance Leaders and definitely goes beyond tickbox exercises.
For senior leaders in insurance, engagement isn’t optional. Because the regulator isn’t asking whether climate risk exists. It’s asking whether firms can demonstrate that they understand it, govern it and manage it.
Thank you for listening to us from Weightmans.
Until next time, stay informed, stay resilient, and keep looking ahead.
