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UK regulator to tackle insurers' 'cognitive dissonance' on climate change

The U.K.'s Prudential Regulation Authority, or PRA, is planning to probe insurers' climate change resilience in April as part of a stress test of the insurance market, according to Bank of England Governor Mark Carney.

In a speech at a European Commission conference on sustainable finance, Carney said the PRA would ask U.K. insurers to examine how their businesses would be impacted in "different physical and transition risk scenarios" as part of next month's stress test.

Despite insurers' sophistication in modeling climate risks, Carney said the PRA has found "gaps" in their risk management.

"The PRA is increasingly focused on cognitive dissonance in some insurers whose careful management of climate risks on the liability side of their balance sheets is not always matched by similar considerations on the asset side," he added.

The PRA, which is a division of the Bank of England, conducts a stress test of the U.K. general insurance industry every two years. The last exercise was conducted in 2017.