Almost 60% of Bermuda P&C insurers have not revised business strategy for climate change

Written by Adam Cadle

23/03/2021

The majority of Bermudian insurers have not planned or implemented changes to business strategy in response to climate change, but the vast majority have incorporated it as part of their risk management framework, a new report published by the Bermuda Monetary Authority (BMA) has shown.

The Authority’s 2020 Climate Change Survey Report said 58.5% of P&C insurers in Bermuda have not implemented or planned changes to business strategies. This was the same for 76.7% of life insurers.

“More P&C insurers have explicitly placed the responsibility for ESG/climate change at an executive/senior management level, than life insurers,” the report stated.

“For those companies incorporating climate change into their planning, a shifting market outlook was identified as one of the key aspects driving them to look into climate change as part of their business strategy.”

A total of 81.5% of P&C insurers and 65% of life insurers said their risk management frameworks, however, incorporated climate change risk. The BMA said a closer look at the information provided showed that “integration remains a work in progress and is biased towards certain risks (e.g., nat cat risk where models are adjusted to consider climate change risk assumptions or are monitored as part of emerging risk registers)”. Integrations was observed as not yet very comprehensive (i.e. does not include detailed and overarching assessments about the impact of transition/physical/liability risks on the insurer). The topic “climate change” is mainly owned by the chief risk officer supported by the existing governance/committee structures. However, an increasing number of insurers have also noted that they have appointed or designated a chief sustainability officer or that there are responsibilities assigned at a board level, which goes beyond merely understanding climate change as a “risk” only.

In terms of investment policies, the report noted that the vast majority of P&C insurers doe not explicitly consider climate change in their investment policies (61.7%), whilst the vast majority of life companies do consider them (54.2%). Of the insurers that have integrated climate change risks in their investment policies, many consider the risk in a generic way and are not describing resulting actions. The following main approaches are being used: ESG screening of investments and consideration of ESG factors in investment selection; identification of high-carbon investments and embedding of climate change in insurers’ risk management frameworks; and discussions with and steering of (external) asset managers.

The BMA stated that there was a general consensus among insurers – with somewhat more concerns from life insurers due to the long-term nature of their assets – that significant uncertainties remain about if and when climate risk will be adequately reflected in the valuation of investments. Insurers identified a number of challenges that they viewed as potentially having a negative impact on the value of their investments, including uncertainty around the extent and direction of government involvement and lack of an effective mechanism to quantify the impact of climate change on asset valuation.

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