CONTENTS

Glossary 4

EXECUTIVE SUMMARY 5

INTRODUCTION 7

A. Climate Physical Risk in Italy 7

B. Insurance Protection Gap and Government Response 8

C. Authorities’ Climate Risk Analysis 8

CLIMATE PHYSICAL RISK ANALYSIS 10

A. Overview 10

B. Banks’ Exposures in Scope 11

C. Micro Analysis: Methodology and Scenarios 14

D. Macro Analysis: Methodology and Scenarios 19

E. Impact on the Banking Sector 25

FIGURES

1. Disaster Frequency and Disaster Intensity 7

2. Insurance Protection Gap 8

3. Climate Risk Analysis Modelling Framework 11

4. Banks Domestic Exposures to Mortgages and Sovereign 12

5. Banks’ Domestic Mortgages Geographical Diversification 13

6. Banks’ Domestic Mortgages Geographical Distribution 13

7. Banks’ Domestic Mortgages Exposed to a Low Probability Flood 14

8. River Flood Synthetic Scenarios by River Basin 16

9. Flood Damage Distribution Model 18

10. Agents, Sectors, and Markets of the EIRIN Economy 20

11. Downscaled GDP 21

12. Macrofinancial Scenarios 23

13. Macrofinancial Scenarios – Sensitivity Analysis on Government Support 24

14. Sovereign CDS Spread and PD Shocks 25

15. Mortgage LGD Impact (rp100) 26

16. Mortgage PD Impact 26

17. Mortgage and Sovereign Credit Risk Capital Depletion 27

18. Sovereign Credit and Market Risk Capital Depletion 28

19. Aggregate Capital Depletion 29

20. Sensitivity Analysis on Government Support 30

TABLES

1. Recommendations on Climate Physical Risk Analysis 6

2. Banks Exposures 11

3. LGD Model Parameters 18

APPENDICES

I. Stress Testing Matrix 34

II. Eirin Model 35

III. Flood Scenarios Comparison 41

References 31