This bar chart shows the amount of insured losses from catastrophic weather events in Canada from 1983 to 2021. A catastrophic loss is 1 event costing $25 million or more. The estimated trend for these losses is a steady increase from 1983 to 2021.

The loss plus loss adjustment expenses by year in billions of 2021 dollars is as follows.

This diagram shows the number of pension plans and financial institutions that the Office of the Superintendent of Financial Institutions Canada regulates and supervises. There are approximately 1,200 pension plans and more than 400 financial institutions. The more than 400 financial institutions include not only deposit‑taking institutions, such as banks and trust and loan companies, but also insurance companies, such as life insurance companies and property and casualty insurance companies.

This exhibit gives examples of how a physical risk, such as a flood, and a transition risk, such as a technology change, can affect the economy and financial system. Physical risks and transition risks are the 2 types of climate-related financial risks.\

The example of how a physical risk can affect the economy and financial system is the following: An extreme weather event disrupts business and lowers corporate profitability, which results in financial market losses. This example is illustrated as follows:

• A retailer’s main warehouse is flooded. This is the risk from an extreme weather event.
• The retailer loses millions of dollars in inventory. This is the effect on the economy from the business disruption for the retailer.
• The retailer misses out on sales and loses money on damaged inventory, thus corporate profits decline.
• The retailer faces difficulty paying back its loans to banks. This is the effect on the financial system from the retailer’s financial losses.
• This effect on the financial system results in banks restricting lending and insurers increasing premiums. These actions affect the retailer that lost millions of dollars in inventory and also affect the economy.

The example of how a transition risk can affect the economy and financial system is the following: An improvement in renewable energy technology lowers its cost, disrupts business for oil and gas companies, and lowers corporate profitability, which results in financial market losses. This example is illustrated as follows:

• A new design makes wind turbines cheaper and more efficient. This transition to the improved renewable energy technology is a risk for the economy and the financial system.
• Demand for oil and gas drops, which lowers their prices. This is the effect on the economy from the business disruption for oil and gas companies caused by the technology transition.
• Oil and gas companies’ profits decline.
• Oil and gas companies face difficulties repaying their loans. This is the effect on the financial system from the oil and gas companies’ financial losses.
• This effect on the financial system results in banks restricting lending and charging higher lending rates to oil and gas companies. These actions affect the oil and gas companies that had to lower their prices because demand dropped and also the economy.