Insurance and Climate Risk 2017

Keynote address: The insurers' role in building resilience and sustainability

State of play of the global climate response at an international, political and sector level

Update on the regulatory/political landscape

• Update on key regulation, policies and initiatives
• Task Force on climate-related financial disclosures TCFD
• Increased demand from regulators for investors to document how they are carrying out their RI process
• The TRUMP administration- what impact (if any), do we think Trump's decision to withdraw from the Paris climate accord and his policies will have?

Market landscape

• How fast do experts think the energy transition is taking place and what does this mean for us in terms of risk and opportunity?
• Data evidence of patterns of loss and relationship to climate change
• Likely impact on capital adequacy

Insurance landscape

• Changing perception of environmental risk - Where is the insurance industry now in terms of its understanding and tangible action?
• Understanding physical, liability and transition risks on both underwriting and asset side of the business
• Where are we in terms of integrating environmental considerations into the holistic business discussion?
• Progress towards improving modeling capabilities

The disruptive cascade effect of physical environmental risks: impact on insurance risk and global industry

• Which physical environmental risks pose the greatest risk in terms of likelihood of occurrence and impact?
• Understanding the interconnectedness of environmental risks - just how far reaching could the ripple effect be?
• Resulting operational risk - fallout and impact on the insurance and wider financial sector if we fail to correctly model environmental exposures.
• Insurance risk – potential impact as a direct result of climate risk – eg damage to property, business interruption risk, supply chain interruption and the domino effect.
• Rising premiums?
• Risk pooling?
• Uninsurable risks in the long term?
• Widening climate risk protection gap– who will pick up the pieces if insurance firms can't insure? Government as insurer of last resort?
• A CASE STUDY APPROACH TAKING 1 KEY PHYSICAL RISK – A SCENARIO ANALYSIS TO DEMONSTRATE THE POTENTIAL RIPPLE EFFECT AND ITS REPERCUSSIONS ON THE INSURANCE SECTOR, BUSINESS, FINANCIAL SECTOR, GOVERNMENT AND SOCIETY.

Speaker:
John Scott, Chief Risk Officer, Zurich

Modelling physical environmental risks: the challenge of combining climate risk modelling with Nat Cat modelling

• The shortfalls of traditional risk measurement and management tools when applied to climate risk
• Where does the complexity mainly lie?
• To what extent do we think climate change is affecting weather patterns today?
• To what extent are other factors such as El Nino distorting the picture and masking the true impact of climate change
• Factoring in indeterminate/uncertain time horizons
• What approaches are insurers taking?
• Scenario modeling/disaster scenario modelling
• Stress testing
• Probabilistic modeling

Applying ESG criteria to the insurance underwriting business

• Identifying key sustainability risks in the underwriting business
• Key sectors at risk
• Key lines of business at risk
• Screening sensitive transactions for impacts and assessing extent of impact
• Embedding due diligence process in underwriting practice
• Abstain vs. engage
• Opportunities to contribute to positive change and enhance resilience

Analysis and feedback from a scoring exercise on the underwriting policies of 25 leading insurers in relation to climate change

Speaker:
Peter Bosshard, Finance Programme Director, The Sunrise Project

Panel discussion: Steps towards incorporating ESG considerations into the investment decision

A panel of investment experts discuss approach, progress and challenges for the balance sheet.

• How far along in the journey are we to integrating environmental considerations into investment decisions?
• Consideration of the challenging low rate and global economic environment and restrictive regulatory framework – does this strengthen the case for incorporating ESG considerations or reduce it?
• Overview of policy adopted and why?
• Asset exclusion
• Engagement strategies
• Low carbon indexes
• Impact investing
• Investing in renewables
• Allocating capital via green bonds
• What impact does the integration of physical and transition environmental risks into the investment criteria have on the risk/return of a portfolio?
• Asset exclusion - what alternative assets can you invest in to replace it with?
• What opportunities do you see presented by climate risk?
• How do you take advantage of these opportunities without creating transition risk?
• Managing Transition Risk in the investment portfolio – walking the tightrope to bring about transition without creating transition risk

Moderator:
Michael Lewis, Head of ESG Thematic Research, Deutsche Asset Management

Panellists:
Jelle van der Giessen, Chief Investment Officer, NN GROUP
Johanna Kob, Responsible Investment Analyst, ZURICH

True asset valuation: stranded assets; assessing and addressing transition risk

• The current challenge of valuing assets
• How confident can we be that all assets are correctly valued on a company's balance sheet?
• What impact will the Recommendations Report by the Task Force on Climate Related Financial Disclosure (TCFD) have on our ability to measure carbon asset exposure?
• What dimensions do we need to bring in to our stress tests to make sure we are not pricing on a historical basis but rather truly reflecting the impact of environmental change on asset values, and the potential pace of change:
• macroeconomic and demographic variables, future policy implementation, technological developments, price and inputs of commodities
• Risk and impact of illiquid stranded assets: how imminent and significant could the threat of stranded assets be?
• Factoring in the risk of abrupt shocks in the context of transition risk - potential accelerators in the transition to a low carbon future and likely impact on transition risk:
• Policy changes
• Policy error
• Regulatory changes
• Technological breakthrough
• Pressure from activists and stakeholders to take a stronger position on carbon exposure and subsequent divesting of high carbon assets
• What skills and lessons can we take from our risk and underwriter colleagues' experience of modeling exposure?
• Impact of transition risk on the liability side

Panel discussion: Overview of opportunities for the insurer as a result of climate change

• Opportunity for insurers to use their unique understanding of both asset and liability sides of the balance sheet to help educate and inform other industries.
• Taking a competitive advantage in the move towards a greener economy - what are the opportunities for insurers and how do we position ourselves to access them?
• Product innovation as data improves
• Opportunities to break into emerging economies
• Creation of green bonds that minimize transition risk
• Investing in renewables
• Subsidy-free offshore wind farms
• Investing in new technologies to speed up the transition to low carbon environment.
• Importance of viewing opportunities within the context of risk – balancing the 2 and avoiding creating transition risk as a result of opportunities taken.

Panellists:
Dr. Tom Herbstein, Programme Manager, ClimateWise
Cynthia McHale, Director of Insurance, Ceres

Panel discussion: Investing in renewables

• Redirecting capital into investments that can support the transition to a climate resilient economy
• How can regulation better support growth of renewable investment opportunities?
• What is the relationship between investment in resilience enhancing investments and underwriting profits?
• Managing the liquidity around investing in renewables
• Choosing the right time horizon
• Short term vs. long term environmental considerations
• Importance of local regulation

Panellists:
Matthias Seewald, Chief Investment Officer, Allianz

Panel discussion: investing in green bonds

Making green bonds more accessible

• Rates of green bond issuance
• Supply vs. demand
• Hindrance to growth of the green bond market:
• Lack of global standards for green bond issuance
• Growing risk of green washing
• Understanding similarities and differences between green bond definitions
• Lack of transparency over performance measures –how can investors better assess the impacts the bonds have on the environment?
• Better reporting metrics
• Quantitative key performance indicators
• Insurers as issuers of green bonds; QBE Green Bond Framework – can other insurers follow suit?
• Opportunities for issuance in emerging markets

Panellists:
Johanna Kob, Responsible Investment Analyst, Zurich
Miroslav Petkov, Director, Financial Services/Insurance, S&P Global