Climate Risk Disclosure & Insurance:

Communicating Risks, Communicating Actions

Max Messervy, Manager, Insurance Program

Ceres Chapel Hill, NC March 20, 2015

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Presentation Overview

1. Introduction to Ceres 2. Insurer Climate Risk Disclosure Survey 3. Climate Risk Management Communication 4. Closing Perspective

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A Record Winter In Record Time

Mobilize Business & Investor Leadership to Build a Thriving, Sustainable Global Economy

Investor  Network  Over  100  members  

currently  represen2ng  more  than  $13  trillion  

AUM  

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The  Ceres  Coali3on  More  than  130    

organiza2ons,  including    environmental  experts,    

public  interest    groups  and  investors.  

Company  Network  More  than  75  members  in  over    20  different  economic  sectors  

 

NAIC Climate Change Involvement

Major Milestones

Source: NAIC, The Center for Insurance Policy & Research, November 24, 2014.

Municipalities Associations,

etc. 2005 2015 2010

NAIC Climate Change and Global

Warming Task Force (1st meeting

summer 2006)

NAIC released The Potential Impact of Climate Change on

Insurance Regulation (2008)

NAIC adopted the Insurer Climate Risk Disclosure Survey

(2009)

Revisions to the NAIC 2013 Financial

Condition Examiners Handbook (2012)

Briefings for Financial Examiners on climate change

(2015)

Ceres issues Climate Risk Disclosure Survey Reports for 2010,

2011 and 2012 reporting years

Survey became a multi-state

initiative: CA, NY, PA, WA (2010)

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Insurer Climate Risk Disclosure Survey Evolution

2010 2011 2012 Insurer Climate Risk Disclosure Survey

Reporting Year

Reporting Thresholds: •  2010: >$500M DPW

•  2011: >$300M DPW

•  2012: >$100M DPW

State Participation: •  2012 included CA,

NY, WA, CT & MN

•  2013 reporting year “new” states IL, MD & NM

Source: Ceres analysis of Insurer Climate Risk Disclosure Survey data for reporting years 2010, 2011 and 2012.

330

184

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Number of Insurance Groups Reporting

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100

200

300

400

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Ceres Insurer Climate Risk Disclosure Report and Scorecard:

2014 Findings and Recommendations

•  Ceres’ report is based on Climate Risk Disclosure Survey for reporting year 2012

•  (Re) Insurers included in Survey:

o  87% of the total US insurance market (DPW)* o  (Re) Insurers in CA, NY, WA, CT, and MN o  Companies with $100M+ direct premiums written

6 Sources: US Treasury, Annual Report on the Insurance Industry, June 2013; A.M. Best and NAIC company data.

Ceres’ Evaluative Approach

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Six Climate Risk Management Themes

1 Climate Risk Governance

2 Enterprise-Wide Climate Risk Management

3 Climate Change Modeling & Analytics

4 Stakeholder Engagement

5 Internal Greenhouse Gas Management

6 Quality of Climate Risk Disclosure

Climate Risk Management Ratings Hierarchy •  Top Quartile = Leading Practices •  2nd Quartile = Developing Practices •  3rd Quartile = Beginning Practices •  Lowest Quartile = Minimal Information

Climate Risk Disclosure & Insurer Size: 2012 Median Direct Premiums Written

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$5B $1.3B $1B $430M

Percentage of Total 2012 US Direct Premiums Written (Total = $1.14T)

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10% 24% 28% 24%

P&C Climate Change Modeling and Analytics

Leading Practices

•  Integrate data from multiple sources

•  Run stress tests with conservative risk predictions

•  Employ cat models that project up to/past five years

Zurich maintains a sophisticated mathematical National Catastrophe Model to understand the aggregate risk at the Group level. It includes climate-related perils, such as tropical cyclones, extra-tropical cyclones, floods and severe convective storms. The model is not purely relying on a single model vendor…but has the flexibility to use any vendor model's output and implement proprietary adjustments to both the severity and frequency of events to reflect the 'Zurich View' of risk. Zurich aims to understand the assumptions in the models, gain a multi-model view, compare to claims experience and use internal and external insight.

Zurich monitors emerging climate research through internal expertise and gains external insight through the Natural Catastrophe Advisory Council, which is made up of world-class scientists, including an author from the Intergovernmental Panel on Climate Change.

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“Since 2007, a Group-level business unit "Allianz Climate Solutions" that houses significant climate risk related expertise has been guiding adjustments to Group Risk Policies and Standards that govern worldwide businesses, as well as Group investment strategies. “This unit also provides technical and other expertise that Allianz’s U.S. businesses and other worldwide operating entities can draw upon as they respond to climate risk issues via product development, risk management, investment considerations, etc.”

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Revisions to the NAIC 2013 Financial Condition Examiners Handbook

(adopted December 2012)

•  In 2012, state insurance regulators, working through the NAIC, adopted revisions to the 2013 Financial Condition Examiners Handbook (FCEH).

•  The updates provide examiners with guidance on what questions to ask insurers regarding the potential impact of climate change on solvency.

•  The questions were designed to help identify unmitigated risks and to provide a framework for examining such risks and their impact on how an insurer invests its assets and prices its products.

•  Ceres and Rector & Associates conducted climate risk briefings for financial examiners and analysts in California and Washington State in early 2015 – strong feedback received.

Source: NAIC, The Center for Insurance Policy & Research, November 24, 2014. 13

Underwriting: Gather Information Examination Phase 1

•  Types and amounts of policies written •  ERM practices related to climate change risk •  Corporate culture related to climate change risk •  Interviews about integration of climate change risk into underwriting

and pricing o  Chief Underwriting Officer/Manager o  Chief Pricing Actuary

•  Interview with appropriate Board of Director member regarding Board’s involvement in climate change

•  Underwriting results (Financial Statements) •  Actuarial Opinion & Report •  Business plan

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Closing Considerations

•  At least some insurers are taking more action on climate risk than reported in the Climate Risk Disclosure Survey

•  A key question is – who within the insurance company’s senior management should be responsible for the quality of climate risk disclosure?

•  Public reporting remains important for multiple (re) insurance stakeholders:

–  Consumers

–  Regulators

–  Investors

•  Regulatory oversight and assessment of (re) insurer climate risks are crucial for securing the future insurability of exposed areas.

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Thank You

Max Messervy Manager, Insurance Program

Ceres messervy@ceres.org 617-247-0700 x 126

@MaxMesservy

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