Amid the rising focus on ESG within the industry agenda, a growing number of companies have introduced policies to partially restrict their appetite for these risks, mostly with the caveat that they will partner with clients through the energy transition rather than walk away completely.
At The Insurer, we recognise there are nuanced moral and political issues at stake as companies set out their stance on decarbonising their underwriting portfolios, with competing interest groups making demands on the sector.
Against this backdrop, the news on Friday afternoon that Munich Re Syndicate 457 is to stop all traditional oil and gas underwriting from the start of 2023 was an extraordinary and wholly unexpected development.
As a reminder, Syndicate 457 (the Watkins Syndicate) is a major leader in the class. Indeed, it is so influential in certain areas – some sources estimate it provides as much as $300mn Gulf wind aggregate, for example – that its decision to withdraw may well impact 2023 pricing.
But group chief underwriting Dominick Hoare – who has written oil and gas energy insurance most of his professional life – wrote to the market with the language of a Damascene convert.
“The undoubted impact of fossil fuels on climate change demands a proactive stance from insurers,” he exclaimed.
“This decision will enable the syndicate to focus its efforts on supporting the energy transition by absorbing technical risks, enabling businesses in the sector to focus on their growth.”
Less clear, however, was what will happen to Hoare’s oil and gas team and the business itself. Will the renewal rights be transferred to ensure client stability or does that go against the spirit of the decision, for example?
But what about reinsurance?
And then there is the question that can only be answered by the Munich head office: namely, if the company believes this is the way it should respond to the issue of climate change then presumably it will also be withdrawing from traditional energy reinsurance?
Curiously, Munich Re was silent on the issue late last week although underwriting signals suggest they expect to continue. On that basis, one has to question Munich Re’s logic and consistency, albeit with the caveat that it is obviously easier to monitor one’s own carbon underwriting footprint in insurance versus reinsurance. Certainly, if Munich Re is still writing traditional energy reinsurance in, say, two to three years’ time then cynics might suggest there were other reasons at play for its decision at Lloyd’s other than simply ESG.
But perhaps the biggest unknown is to what extent – if at all – others might be inspired to follow the syndicate’s move and, if so, what the consequences might be for the energy sector?
But there is no question we live in changing times and insurers are increasingly under pressure to consider their carbon underwriting strategies. At Lloyd’s, all plans submitted as part of this year’s business and capital planning process had to be accompanied by an ESG strategy, for example.
While earlier this year, The Insurer conducted its first independent survey of the Lloyd’s market’s ESG progress, with respondents representing more than 70 percent of market capacity taking part.
The results demonstrated how quickly the market is evolving. While less than 15 percent integrated ESG factors into decision-making at the time of the survey, 63 percent said they would do so by midpoint 2022. In other words, it is becoming a key driver of strategy at Lloyd’s - and, of course, beyond.
On that basis alone, we should expect others to follow a similar path of ESG conversion in time….
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