This paper presents a contingent claim model designed to assess an insurer’s equity within
the framework of carbon trading regulations imposed on borrowing firms while also considering
the integration of green lending. The development of this model is particularly relevant
for regions with established carbon trading markets, with a specific focus on the post-period
following the 2015 Paris Agreement concerning climate change. We focus on shareholders
and policyholders to optimize equity and ensure maximum protection. Strict caps in capand-
trade harm interest margins, reducing guaranteed rates for equity maximization and
compromising policyholder protection. Government intervention through sustainable production
carbon trading hinders win-win outcomes. Green subsidies can improve insurer
margins, but achieving win-win solutions remains challenging. A collective approach is
needed to share sustainable production and finance benefits among diverse economic
sectors.
