Insurers could experience 'losses of more than 25%' in equity investment portfolios within high-carbon sector

Written by Adam Cadle

15/12/2020

European insurers could be seeing losses of more than 25% on average in their equity investment portfolios within the high-carbon sector, EIOPA has said.

In its latest sensitivity analysis of climate-related transition risks in the investment portfolio of European insurers, EIOPA stated that these losses are “in particular driven by investments in fossil fuel extraction, especially oil and gas, but also by investments in car production based on traditional internal combustion engines”.

“The losses on the corporate bond portfolio are smaller than those for equities, but are largely driven by the same sectors. Holdings in the coal power sector, however, account for a somewhat larger share of losses for corporate bonds than for equities. Holdings in cement and steel production, and aviation, are generally smaller and these sectors do not therefore contribute much to the total losses explored in this report.”

While the overall impact on the balance sheets of the insurance sector is counter‐balanced both by investments in renewable energy and the fact that insurers’ portfolios are generally well diversified, EIOPA is working with national supervisors and expects insurers to follow up on the risks identified.

“Sustainable finance will remain a strategic area for EIOPA in coming years,” EIOPA chair Gabriel Bernardino said.

“The role of (re)insurers in addressing climate change is more important than ever. EIOPA expects the industry to manage and mitigate sustainability risks and adopt a sustainable approach to their investments based on principles of stewardship. This will not only support the insurance sector, but also contribute to making sure the financial sector plays a positive role in combatting climate change by channelling funds to more sustainable initiatives.”

The full analysis can be accessed here.

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