European re/insurers are sprinting ahead in cutting fossil fuel exposure - Moody's

Europe's biggest re/insurers are taking a more proactive approach to managing their fossil fuel exposure than their North American and Asian peers, which continue to insure the coal sector, according to a new report by Moody's.

Allianz, AXA, Swiss Re, Munich Re and Zurich are going further than most of their global peers in reducing their underwriting and investment exposure to fossil fuels, and thermal coal in particular, because the sector is said to have the highest carbon intensity per unit of energy produced.

While their approaches may vary, all five re/insurers are responding to increased regulatory, investor and public focus on carbon emissions by providing less cover to coal and other carbon-intensive industries.

Swiss Re is the first insurer to start phasing out underwriting and investment exposure to oil and gas producers, which Moody's believes is a bold move given the size and prominence of companies in this sector, compared to the coal sector which is already in secular decline in many parts of the world.

Allianz, AXA and Munich Re are withholding insurance cover from individual coal mines and power plants, but continue to insure the coal operations of diversified clients as part of broader insurance packages. Swiss Re and Zurich have taken a slightly different approach, excluding clients that derive more than 30 percent of their revenue from coal mining or coal-based power generation, and in Zurich's case, oil sands and shale as well.

The agency noted that although a handful of North American and Asian re/insurers have also implemented such policies, notably Chubb, AXIS and QBE, the majority of large US and Asian insurers have not yet publicly taken steps to limit their exposure to thermal coal.

Moody's said that it views their retreat from coal as "credit positive", as it protects them against potential climate change liability risk, and reduces the risk of their investment assets becoming “stranded” – economically non-viable due to faster than expected transition to carbon-neutral alternatives.

"We view the insurers' retreat from thermal coal as positive," said Brandan Holmes, a Moody's vice president. "It reduces their exposure to potential climate change liability risk, and reduces the risk of their investment assets becoming stranded."