The contributions of this study are two-fold. Firstly, we use the recently published climate policy uncertainty (CPU) index as a proxy for climate risk. The CPU index, developed by Gavriilidis (2021), is a news-based measure of climate uncertainty. The use of this index could be beneficial for exploring the association under study as it is constructed based on the keywords such as "uncertainty", "uncertain", "carbon dioxide", "climate", "climate risk", "greenhouse gas emissions", "greenhouse", "CO2", "emissions", "global warming", "climate change", "green energy", "renewable energy", "environmental", "regulation", "legislation", "White House", "Congress", "EPA", "law", "policy" etc. Second, we explore whether gold, an important strategic commodity, could hedge the risk of insurance companies during the periods of high climate risk. While earlier studies find that gold acts as an effective hedging instrument during crisis periods (Ahamd et al, 2018; Dutta et al., 2020), our objective is to scrutinize whether this precious metal can minimize the risk linked to insurance firms in the presence of high climate risk. Hence, given the substantial increase in climate uncertainty over the past years, our analysis could be useful for insurance company investors aiming at hedging climate risk. Besides, our research would also improve the return profile of insurance firms.

2023