Sustainability and Insurance: March Roundup
April 5, 2024
Welcome to our monthly sustainability roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. March’s topic: The difference between legacy players and new entrants in the markets approach to ESG
Read our summary and analysis below.
Analysis
The difference between legacy players and new entrants in the markets approach to ESG
In our last newsletter we discussed three key opportunity developments: carbon credits, decarbonisation initiatives and parametric insurance. As a follow on, this month our analysis outlines the different ways key players in the market are shaping their portfolios towards green opportunities and sometimes actively away from a reliance on fossil fuels.
Munich Re 457’s recent announcement of a 16% increase in GWP alongside an improvement in combined ratio, reinforces broader market trends that a shift towards ESG aligned underwriting is not only commercially viable but also potentially lucrative. In January 2023, Syndicate 457 announced that it would withdraw from writing traditional oil and gas business in order to align with its ESG vision. This 2023 earnings report shows that ESG alignment has not prevented 457 from taking full advantage of the current hard market. Announcements from Tokio Marine and Probitas 1492 in recent weeks outlines that this trend away from traditional emission emitting risks is not due to stop anytime soon, as more insurance providers align their ESG vision with their underwriting appetite.
The carbon credit insurance market has continued to go from strength to strength this month with new product announcements from CFC and Oka. Oka has brought the first invalidation-insured biochar credits to the insurance market. With Biochar Carbon Removal (BCR) accounting for 94% of credit deliveries in 2023 this offering significantly widens the coverage businesses can expect to receive when they participate within the Voluntary Carbon Market (VCM). Additionally, CFC have also brought a new product to the market, a new Carbon Delivery insurance which prices based on the underlying Voluntary Carbon Credit (VCC) asset rather than individual pricing for each policyholder. This allows for same day pricing for large portions of the VCC market making this product a game changer not just in its coverage but also significantly improves the client experience.
As well as new offerings, March saw the 1-year anniversary of Hiscox’s new ESG focused sub-syndicate (3033) with Hiscox’s stating that so far performance has “exceeded our expectations”. This could potentially mean that the sub-syndicate may be spun-off into a separate entity or even take on external capital in years to come (both ideas floated by Hiscox’s upon the launch of 3033).
And finally in what will be the final budget of this parliament, the Chancellor of the Exchequer Jeremy Hunt announced that the government plans to regulate the provision of ESG ratings in cases where those ratings are used for investment and capital allocation decisions. Watch this space as a full consultation response and legislative steps are due to be announced later in the year.
Summary
Commercial benefits from Green Pivot
Munich Re 457 reports 16% increase in GWP amid pivot to green commercial lines (The Insurer)
Munich Re 457 reported a strong performance during 2023 with a 16% increase in GWP alongside a 3pt improvement in Combined Ratio. This comes after Syndicate 457 announced in January 2023 that it would withdraw from writing traditional oil and gas business to align with its ESG vision. The Syndicate have been approved to write with a capacity of £1.4bn in 2024.
Hussain: Hiscox ESG sub-syndicate has “exceeded expectations” (Sustainable Insurer)
Hiscox’s ESG focus sub-syndicate 3033 has had a successful first year since it launched in April 2023, demonstrating a significant market appetite. New and Existing syndicate 33 business was ceded to the new sub-syndicate. Hiscox’s are quoted as saying that performance so far has “exceeded our expectations”.
Carbon Credits
CFC launches groundbreaking carbon delivery insurance policy (CFC)
CFC announced in mid-March a new “Carbon Delivery Insurance” product which will cover both the physical and political risks faced by business purchasing Voluntary Carbon Credits (VCCs). Crucially this project models and rates based on the VCC itself rather than the policyholder which enables same day quoting and binding on over 300 carbon projects.
Oka, The Carbon Insurance Company™ (Oka) and Oregon Biochar Solutions Bring First Insured Biochar Credits to Market (PR Newswire)
Oka has partnered with Oregon Biochar Solutions (OBS) to bring world-first invalidation-insured biochar credits to the voluntary carbon market (VCM). Demand is surging for carbon dioxide removal (CDR) projects, with Biochar Carbon Removal (BCR) accounting for 94% of all such credit deliveries in 2023. Revenue generated from credits has, in turn, helped developers achieve commercial viability.
Global Development
Insurance a “stabilising force” to uneven global development: Generali (Sustainable Insurer)
This report jointly published between Generali and the United Nations Development Program found that agency gaps caused by economic and social inequality prevented “people’s ability to act as agents of change to support collective action”. The report outlined the important role that financial services (and in particular insurance and investment services) play in enabling global development, describing insurance as a “stabilising force”.
Decarbonisation
Tokio Marine introduces transition plan requirement for ~70% of portfolio emissions (Sustainable Insurer)
Tokio Marine has said that Tokio Marine & Nichido Fire Insurance will introduce a new policy to engage with 60 companies in greenhouse gas-intensive sectors to develop decarbonisation plans. These companies account for approximately 70% of their portfolio’s emission. They will no longer provide underwriting, investment and financing for companies that fail to have plans in place. These restrictions apply to equity, bond and corporate financing.
Probitas announces block on insuring two major fossil fuel projects (The Canary)
After being the Target of climate protest from Extinction Rebellion and Insure Our Future, Probitas 1492 has confirmed that it will not provide insurance products to the East African Crude Oil Pipeline (EACOP) and the proposed West Cumbria coal mine. This follows Probitas’ exit from insuring the controversial Adani Carmichael coal mine in Queensland, Australia.
SME
Beazley unveils sustainability business hub for UK SMEs (Sustainable Insurer)
Beazley has launched Better Business Hub, which focuses on sustainable and responsible business practices for UK SMEs. Launched in collaboration with Good Innovation, a social impact consultancy, this platform aims to help businesses understand how ESG and sustainability affects them and how to take advantage of business benefits. It comes after a recent report published by Beazley found that more than a quarter of small businesses which listed ESG as a key business risk felt unprepared to deal with it.
Government Regulation
Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers (GOV.UK)
The Chancellor of the Exchequer announced at the Spring Budget that the government will regulate the provision of ESG ratings where those ratings are used for investment and capital allocation decisions. A full consultation response and legislative steps will be announced later in the year.
About the author
Struan Hancock is a Consultant at Oxbow Partners. He has recently worked on a target operating model design for a Bermuda based reinsurer and a workbench implementation project for a London Market syndicate.
