Insurer Climate Risk Disclosure Survey Report & Scorecard

Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 FInDIngS & ReCommenDatIonS

October 2014 ▪ Ceres Insurance Program ABOUT CERES Ceres isanonprofitorganizationadvocatingforsustainabilityleadership.Itmobilizesapowerful networkofinvestors,companiesandpublicinterestgroupstoaccelerateandexpandthe adoptionofsustainablebusinesspracticesandsolutionstobuildahealthyglobaleconomy. CeresalsodirectstheInvestorNetworkonClimateRisk(INCR),anetworkofover100 institutionalinvestorswithcollectiveassetstotaling$13trillion.Formoreinformation,visit www.ceres.org orfollowCereson Twitter:@CeresNews .

LEAD AUTHOR Max Messervy with Cynthia McHale Rowan Spivey

ACKNOWLEDGEMENTS TheauthorswishtothankthemembersoftheCeresteamwhoprovidedvaluableinsightand contributedtothewritingofthisreportincludingAndrewLogan,NancyIsrael,PeytonFleming , andAndrewBeers.WewouldalsoliketothankTheSkollFoundation,TheKresgeFoundation , andtheHenryPhillipKraftFamilyMemorialFundinTheNewYorkCommunityTrustfortheir ongoingsupportofthiswork. GraphicdesignbyPatriciaRobinsonDesign.

EXPERT REVIEWERS Ceresandtheauthorswouldliketoextendtheirdeepappreciationtotheexpertswho generouslysharedtheirtimeandexpertisetoreviewandprovidefeedbackonthisreport. Don Kirshbaum ,OfficeoftheConnecticutStateTreasurer,Retired Barney Schauble ,ManagingPrincipal,NephilaCapital TheopinionsexpressedinthisreportarethoseofCeresanddonotnecessarilyreflectthe viewsofreviewers. ©Copyright2014byCeres.

FOR MORE INFORMATION, CONTACT: Max Messervy Manager,InsuranceProgram Ceres [email protected] Cynthia McHale Director,InsuranceProgram Ceres [email protected] 99ChauncyStreet Boston,MA02111 www.ceres.org Contents

FOREWORD ...... 4 EXECUTIVE SUMMARY ...... 5 CHAPTER 1: A MORE HAZARDOUS OPERATING ENVIRONMENT FOR INSURERS . . 11 1.1 HigherPropertyLossesfromExtremeWeather 1.2 GrowingClimateLitigationThreat 1.3 ClimateRiskandInsurers’InvestmentPortfolios 1.4 ClimateRiskDisclosure:WhatRegulatorsandInvestorsNeedtoKnow CHAPTER 2: OVERVIEW OF INSURER CLIMATE RISK SCORING RESULTS ...... 18 2.1 ReportObjective 2.2 ScoringMethodology 2.3 ProfileofInsurersintheSurvey 2.4 OverallInsurerPerformance CHAPTER 3: PROPERTY & CASUALTY INSURERS SURVEY FINDINGS ...... 26 3.1 ClimateRiskGovernance 3.2 ClimateRiskManagementStatement 3.3 Enterprise-wideClimateRiskManagement 3.4 ClimateChangeModeling&Analytics 3.5 StakeholderEngagement 3.6 InternalGreenhouseGasManagement 3.7 ClimateRiskDisclosure&Reporting 3.8 Year-Over-YearClimateRiskManagementStatementComparison CHAPTER 4: LIFE & ANNUITY INSURERS SURVEY FINDINGS ...... 44 4.1 ContextandOverallScores 4.2 ClimateRiskGovernance 4.3 ClimateRiskandInvestments CHAPTER 5: HEALTH INSURERS SURVEY FINDINGS ...... 48 5.1 ContextandOverallScores 5.2 ClimateRiskGovernance 5.3 ClimateRiskandInvestments 5.4 SupportingResearchandPublicAwareness CHAPTER 6: RECOMMENDATIONS ...... 51 6.1 RecommendationsforAllU.S.Insurers 6.2 KeyRecommendationsforProperty&CasualtyInsurers 6.3 KeyRecommendationsforHealthInsurers 6.4 KeyRecommendationsforLife&AnnuityInsurers 6.5 KeyRecommendationsforRegulators BIBLIPGRAPHY ...... 55 APPENDICES ...... 59 A. InsuranceCompanyScorecards B. InsurerClimateRiskDisclosureSurveyQuestions C. ListingofInsurerRespondentsto2012ClimateSurvey

3 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Foreword By Mike Kreidler

Washington Insurance Commissioner Chair, National Association of Insurance Commissioners’ (NAIC) Climate Change and Global Warming Working Group

Theinsurancesector,bynecessity,isaconservativeandpragmaticindustry.Itswhole purposecanbesummarizedintwocoregoals: ñ Toserveakeyfinancialneedbyconsumersandbusinessesforasafetynetagainstrisks. ñ Tomakesufficientmoneyintheprocess,aftercoveringclaims,toprovideareasonable returntoinvestors. Asstatecommissionerswhorespecttheneedforahealthyinsuranceindustrythatmeets thesegoals,weareencouragedtoseethelargestresponseevertothe Climate Risk Disclosure Survey ,anearly80percentincreaseininsurerresponsescomparedto2011.The330 companyresponsesinthisCeresreportrepresent87percentofthetotalpremiumvalueof insuranceissuedintheUnitedStates.Weareespeciallypleasedwiththeleadershippractices thatkeypropertyandcasualtycompanies,includingTheHartford,Catlin,Hanover,theXL GroupandSwissRe,areusinginassessingandprotectingthemselvesandtheirclientsfrom climatechangerisks. However,muchoftheinsuranceindustryisstilllaggingonthisimportantissue,particularly thoseintheLifeandAnnuityandHealthsectors—andtheycannotaffordto.If97percentof ouractuariesconcludedtherewasgoingtobeadeclineinpublichealthduetoamedically identifiedepidemic,wewouldexpectthefirmsweregulatetoadjusttheirforecasts,premiums andpoliciesaccordingly.Failingtodosowouldbeimprudent.Withclimatechange,97percent ofscientistsinthefieldagreethatitisarealityandaremorefocusedonthetimingand magnitudeofchangesandrelateddamagewecanexpect.Thisindustryshouldbefocused lessonwhatiscausingclimatechangeandmoreonhowwerespondtoandmitigateit. Askeyregulatorsofthissector,westronglyencourageinsuranceindustryleadersand investorswhoownthesecompaniestotakethischallengefarmoreseriously.Thereisno doubtthatanearlyefforttoadjustpolicies,premiumsandinsuranceinvestmentswillresult inlessdramaticimpactslateron,thusavoidingandreducinglossesthatwecanalready anticipate.Theinsuranceindustry,bybeingresponsibleandforward-looking,canleadthe waytobetterpublicandprivateinvestmentsaswellasmorerobustresearchandpolicy engagementtoidentify,quantifyandmitigatethekeyclimaterisksweallface.Asthis valuablereportpointsout,theresultwillbeaninsuranceindustrywhosemarketsexpand ratherthancontractinthefaceofgrowingclimatechangerisks.

4 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Executive Summary the objeCtIve Thisreportsummarizesresponsesfrominsurancecompaniestoasurveyonclimatechange risksdevelopedbytheNationalAssociationofInsuranceCommissioners(NAIC).In2013, insuranceregulatorsinCalifornia,Connecticut,Minnesota,NewYorkandWashingtonrequired insurerswritinginexcessof$100millionindirectwrittenpremiums,andlicensedtooperate inanyofthefivestates,todisclosetheirclimate-relatedrisksusingthissurvey. Theaimofthesurvey,andCeres’analysisoftheresponses,istoprovideregulators,insurers, investorsandotherstakeholderswithsubstantiveinformationabouttherisksinsurersface fromclimatechangeandthestepsinsurersaretaking—orarenottaking—torespondtothose risks.Becausevirtuallyeverylargeinsureroperatesinatleastoneofthemandatoryclimate riskdisclosurestates,thisanalysiseffectivelyopensawindowintotheentireindustry.The reportdistillskeyfindingsandindustry trends,andincludescompanyspecificscoresbasedon disclosedactionstakentomanageclimaterisks.Italso offersrecommendationsforinsurersand regulatorstoimprovetheinsurancesectors’overallmanagementofclimatechangerisks.

CeReS’ analySIS Thesurveygenerated330distinctinsurerresponsesafterduplicateswereremoved,compared to184insurerresponsesinasimilarCeresreportissuedin2012. 1 The330companiesrepresent about87percentoftheU.S.insurancemarketbydirectpremiumswritten.Ceres’analysis assessesinsurerresponsesagainstfivecorethemesthatarealignedwiththeNAIC’sClimate RiskDisclosureSurveyquestions:1)thegovernancestructurescompanieshaveinplaceto addressclimaterisk;2)theclimateriskmanagementprogramscompanieshaveinstituted acrosstheirenterprises;3)howinsurersareusingcomputermodelingtomanagetheirclimate risks;4)howinsurersareengagingwithstakeholdersonthetopicofclimaterisk;and5)how companiesaremeasuringandreducinggreenhousegas(GHG)emissions.Ceresalsoranked companiesontheoverallqualityoftheirresponsestotheeightsurveyquestions. Inordertoprovidestandardized,usefulcomparisonsbetweencompanies,Ceresassigned apointvaluetoeachquestionandsub-questionfromthesurvey. 2 Tosimplifyourreportfindings, Ceresdevelopedafour-tierratingsystem.Usinga100-pointscale, “Leading” companiesreceived 75pointsorhigher, “Developing” companiesreceivedbetween50to75points, “Beginning” companiesreceivedbetween25and50points,and “Minimal” companiesreceivedlessthan 25points.CompanyspecificratingsacrossallsixthemescanbefoundinAppendixA.

1 ThefulllistofsurveyrespondentsislocatedinAppendixC. 2 Forafulllistofquestionsandsub-questionsseeAppendixB.

5 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Key FInDIngS Ingeneral,mostofthecompaniesrespondingtothesurveyreportedaprofoundlack ofpreparednessinaddressingclimate-relatedrisksandopportunities.Onlynineinsurers, orthreepercentofthe330companiesoverall,earnedaLeadingrating.Thevastmajorityof insurers(83percent)earnedBeginningorMinimal ratings.Onanencouragingnote,thereport identifiedasmallsubsetofstrongleadingpractices byinsurersineachofthemajorthemes. Giventhestrongscientificconsensusonclimatechange,therestoftheindustrywouldbewell advisedtoconsideradoptingtheseinnovativepractices.Othermajorreportfindingsinclude: ñ Largerinsurersshowedstrongerclimateriskmanagementpracticesthansmallercompanies. ñ PropertyandCasualty(P&C)insurersdemonstratedfarmoreadvancedunderstandings oftherisksthatclimatechangeposestotheirbusiness,andaremuchfurtheralong indevelopingtoolsneededtomanageclimatechangeriskswhencomparedtotheLife &Annuity(L&A)andHealthinsurancesegments. ñ Despiteincreasedevidencethatextremeheatwavesandotherclimate-relatedimpactswill influencemorbidityandmortalitytrends,L&Aandhealthinsurersshowwidespreadindifference toclimaterisk,bothinregardtotheircorebusinesslinesandtheirinvestmentstrategies. ñ Barely10percentoftheinsurersoverall—38of330companies—haveissuedpublicclimate riskmanagementstatementsarticulatingthecompany’sunderstandingofclimatescienceand itsimplicationsforcoreunderwritingandinvestmentportfolios.Giventheinsurancesector’s keyroleinaddressingsocietalrisks,thisneartotalsilenceonclimatechangeisdeeply troublingandisthwartingconstructivepublicengagementonappropriateresponses. BelowaretheinsurersthatearnedthetopLeadingratingforoverallperformance.AllareP&C (re)insurers,withtheexceptionofPrudential,whichisaL&Ainsurer.TheHartfordandPrudential aretheonlyUS-headquarteredinsurerstoearnLeadingratings.

top RateD (Re) InSuReRS ACE Munich Re Swiss Re Allianz Prudential XL Group The Hartford Sompo Japan Zurich Insurance Key FInDIngS by InDuStRy Segment

property & Casualty Insurers P&Cinsurersareontheveritable‘frontline’ofclimatechangerisks,andthereiscompelling evidencethatthoserisksaregrowing.Risingsealevelsandmorepronouncedextreme weathereventswillmeanincreasinglydamagingstormsurgesandflooding.HurricaneSandy causedanunprecedented14-footstormsurge,eclipsingthe10-footrecordsetin1960, 3 and resultedinmorethan$68billionintotallosses(over$29billionininsuredlosses)and210 deaths. 4 Atremendousamountofproperty(bothinsuredanduninsured)isincreasingly threatenedbysea-levelrise.CoreLogic,aglobalpropertyinformationandanalyticsprovider, identifiedmorethan6.5millionU.S.homesatriskofstormsurgedamage,withatotal reconstructionvalueofnearly$1.5trillioninaJuly2014report. 5

3 KevinH.Kelley,“HurricaneSandy:expectedevent,unexpectedconsequences,” Insurance Day ,August29,2014: https://www.insuranceday.com/generic_listing/catastrophes/hurricane-sandy-expected-event-unexpected-consequences.htm . 4 MunichReNatCatSERVICE, Loss Events Worldwide 1980—2013: 10 costliest events ordered by overall losses: https://www.munichre.com/site/touch- naturalhazards/get/documents_E-311190580/mr/assetpool.shared/Documents/5_Touch/_NatCatService/Significant-Natural-Catastrophes/2013/10-cos tliest-events-ordered-by-overall-losses-worldwide.pdf . 5 CoreLogic,“2014CoreLogicStormSurgeAnalysisIdentifiesMoreThan6.5MillionUSHomeswithTotalReconstructionValueofNearly1.5TrillionDollars atRiskofHurricaneStormSurgeDamage,”July24,2014. http://www.corelogic.com/about-us/news/2014-corelogic-storm-surge-analysis.aspx .

EXECUTIVE SUMMARY 6 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Againstthisbackdrop,theP&Csegment’sreactionhasfrequentlybeentolimitcoverages orentirelywithdrawfromcertaincatastrophe-pronemarkets,especiallycoastalregionssuch asLongIsland, 6 Virginia, 7 Delaware 8 andFlorida.Inthelongrun,thesecoverageretreatstransfer growingriskstopublicinstitutionsandlocalpopulations,andreducetheresiliencyofcommunities , whicharelessabletofinancepost-disasterrecoveries.Climatechangewillincreasetheneed forinsurersandregulatorstopromoterisk-basedpricingbasedonescalatingrisks.Bydoing so,theycanensurecriticallong-termmarketparticipationbytheprivateinsurancesector. Coastalregionsarefarfromtheonlyareasexposedtoclimaterisks.Forexample,agriculture impactsarebeingfeltallacrosstheUnitedStates,asshownbytherecord$17billionincrop lossesincurredbytheFederalCropInsuranceProgram(FCIP)in2012causedbydevastating heatwavesanddrought. 9 Climatechangewillmakedroughtsmorefrequentinsomeregions, likelyresultinginrecord-breakingcroplossesbecomingamorefrequentoccurrence. Extremeweatherisalsoexacerbatingsupplychainrisksandcausingbusinessinterruption losses.Onesuchexamplewasthemassive2011floodinginThailand,aproductionhubfor manyglobalbusinessesthatcaused$15-20billion inlosses,ultimatelyimpactingthe profitabilityofCisco,Dell,Ford,Honda,HP,Toyotaandmany otherglobalfirms. 10 Despitethesetrendsthatjeopardizecoreunderwritingresults,mostP&Cinsurersarepaying inadequateattentiontoclimaterisks.P&CinsurersarestillaheadofL&Aandhealthinsurance providers,however. Amongthereport’skeyfindingsforP&Ccompanies: ñ WhiletheP&CsegmenthashigheroverallscoresthantheHealthorL&Asegments,only eightofthe193companies—fourpercent—earnedtheLeadingratingand20percentearned aDevelopingrating.Putsimply,thevastmajorityofP&Cinsurersarenotaddressing climate riskscomprehensively. ñ NearlyhalfofP&Cinsurershavetakenpositivestepsin Climate Change Modeling & Analytics , with26percentearningaLeadingratingand21percentearningaDevelopingrating.Inmany instances,insurersareusingclimate-informedcatastrophemodelstobetterquantify climate-relatedrisksfrommorefrequentandintenseweathercatastrophes. ñ Only13outof193P&Cinsurers—sevenpercent—earnedaLeadingratingfortheir Climate Risk Governance practices,withanother47earningaDevelopingrating.Insurers withleadingpractices,including The Hartford and Catlin ,haveestablishedstanding cross-functionalcommitteesthatmonitorandreporttoseniormanagementandtheir boardsofdirectorsregardingclimaterisksandopportunities. ñ Enterprise-Wide Climate Risk Management evaluatesinsurerclimateriskresponsesacross threeaspectsofthevaluechain:productsandservices,liquidity/capitalmanagementand investments.Inthistheme,15of193insurersearnedLeadingratings(eightpercent)and 38earnedDevelopingratings(20percent.)Insurerswithleadingpractices,suchas XL Group , trackclimate-relatedclaimsaspartoftheirquarterlyreporting. Hanover Insurance uses ashadowcarbonpriceinevaluatingpossibleinvestmentsincarbonintensiveheavyindustries andutilities.

6 SenatorCharlesSchumer(D-NY),“Schumer:afterSandy,homeinsurancecompaniesareincreasinglyabandoningLongIslanders—eventhose unaffectedbythestorm—forcingthemintofarhigher-priced,lower-coverageplan;willcallforFEMAtobringseriouspenaltiesagainstcompanies iftheycontinuetoleavemarket,”June24,2013. http://www.schumer.senate.gov/Newsroom/record.cfm?id=344160 . 7 SkipStilesandShannonHulst, Homeowners Insurance Changes in Coastal Virginia ,WetlandsWatch,2013. http://www.floods.org/ace- files/documentlibrary/committees/Insurance/WetlandsWatch_Insurance-study.pdf . 8 M.PatriciaTitus,“Insurersabandoncoastalmarket,” Coastal Point ,April19,2008. http://bethanybeachnews.com/content/insurers_abandon_coastal_market . 9 “Record-Breaking$17.3BillioninCropLossesLastYear;SignificantPortionPotentiallyAvoidable,”NaturalResourcesDefenseCouncil, http://www.nrdc.org/media/2013/130827.asp . 10 JoyceCoffee,“SupplyChainsintheFaceofaChangingClimate,”TheEnvironmentalLeader,April30,2014. http://www.environmentalleader.com/2014/04/30/supply-chains-in-the-face-of-a-changing-climate/ .

EXECUTIVE SUMMARY 7 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ñ OnlyfivepercentofP&CinsurersearnedaLeadingratingon Stakeholder Engagement , withanadditionalsevenpercentearningaDevelopingrating.Insurershavemultipletools attheirdisposaltopromoteclimatemitigationandadaptation. Swiss Re ,forexample,is usingaFloodRiskApptoeducateusersontheimportanceofadaptingtoclimaterisks, includingincreasedfloodrisks.

life & annuity Insurers L&AinsurersconfrontdifferentclimaterisksthanP&Cinsurers.However,achangingclimate willstillhavemajorimplicationsforthisinsurancesegment,especiallyconcerningitsvast investmentportfolios.L&Ainsurershavetrillionsofdollarsininvestments—roughlytwo-third oftheU.S.insurancesector’stotalcashandinvestedassets—thatmaybeaffectedbyclimate change. IfL&Ainsurersdonotmanagetheirinvestmentswiththisrealityinmind,theyrisk jeopardizing theirreturnsandlong-termcapacitytomeettheirliabilities. L&Ainsurersalsoneedtoconsidehowglobalwarmingwillaffecthumanhealthandmortality, apointmadeclearbywarningsinthe2014NationalClimateAssessment 11 ofgrowingairpollution impactsonvulnerablepopulations,andextremeweatherandwildfires. Despitesuchconcerns,theL&Asector’soverallresponsetoclimateriskswasmaterially inadequate.Amongthekeyfindingsinthisregard: ñ Overall,L&Ainsurershavetakenlittleornoactiontoreducetheirclimaterisks.Onlyone ofthe92L&Acompanies, Prudential ,earnedaLeadingrating,while79percentofL&A companiesearnedthebottomMinimalrating. ñ Twocompaniesoutlined Climate Risk Governance practicesforidentifying,monitoring and actingonclimaterisksattheboardandseniormanagementlevels. Prudential isunique indesignatingenvironmentandsustainabilityissuesasboard-levelresponsibilities,andfor creatinganEnvironmentalTaskForcetomonitorclimatechangerelatedissues,ledbythe VicePresidentofEnvironmentandSustainability. ñ OnlyoneL&AinsurerearnedaLeadingratingfor Investment Management ,andanother threeearnedtheDevelopingrating.Insurerswithstrongpracticessuchas Boston Mutual notedthatitsinvestmentguidelinesrestrictitfrominvestingalargeportionofitsportfolio incarbon-heavyindustries. Lincoln National statedthatitscreensrealestateinvestments forclimateimpactsacrossoperational,market,liability,policyandregulatoryrisks.

health Insurers Despitegrowingconcernsaboutclimaterelatedimpactsonpublichealth—temperatureextremes, decreasedairquality,andincreasedwaterborneandvector-bornediseases, 12 among those— surveyresponsesshowedthatmostHealthinsurersarenotpreparing.Withaccesstolargesets ofdetailedclaimsdata,healthinsurersareuniquelypositionedtoadvanceclimate-andhealth- relatedresearchinpartnershipwithacademicsorotheroutsideresearchers. Amongthereport’s keyfindingsforHealthinsurers: ñ Overall,noneoftheparticipatinghealthinsurersearnedaLeadingrating,andonlyone insurerearnedtheDevelopingrating,while89percentofthe45companiesearnedthe bottomrating.

11 USGlobalChangeResearchProgram, Third National Climate Assessment , http://www.globalchange.gov/what-we-do/assessment . 12 IntergovernmentalPanelonClimateChange(IPCC) IPCC Fifth Assessment Report: Climate Change 2014 ,“Observedimpacts,vulnerabilities,and trends,”26.6.1,2014,26-28, http://ipcc-wg2.gov/AR5/images/uploads/WGIIAR5-Chap26_FGDall.pdf .

EXECUTIVE SUMMARY 8 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ñ Healthinsurersfaredquitepoorlyon Climate Risk Governance ,withnoinsurersearning atopratingandonlyoneinsurerearningaDevelopingrating.Noneoftheinsurersindicated acomprehensiveresponseonclimateriskgovernanceoraformalizedprocessforidentifying, evaluatingandintegratingnewclimatesciencedatathatcouldinformtheirclimate riskassessments. ñ Overall,98percentofhealthinsurersearnedthebottomtworatingsfor Enterprise-Wide Climate Risk Management ,andnoinsurersearnedatoprating.Healthinsurershavean opportunitytoworkwithtopexpertsandoutsideorganizationstobetterunderstandand prepareforclimaterelatedhumanhealthimpacts,andtodevelopimprovedriskmanagement paradigmstobetterunderstandandprepareforclimaterelatedhumanhealthimpacts. ñ Healthinsurersalsoperformedpoorlyon Stakeholder Engagement ,includingclimaterisk outreachtopolicyholdersandsupportforoutsideclimate-relatedresearch.The Kaiser Foundation Group wasastrongexception,withits KP Research Program on Genes, Environment, and Health (RPGEH ) itlaunchedin2005“toconductresearchto understandgeneticandenvironmentalinfluences—includingweatherandclimate influences—ondiseasesusceptibility,thecourseofdisease,andresponsetotreatment.”

Key ReCommenDatIonS FoR all u.S. InSuRanCe SegmentS ñ Develop Climate Risk Oversight at the Board and C-Suite Levels Addressingthelong-termrisksandopportunitiesofclimatechangerequiresaconcerted effortbyinsurancecompanyleadership,especiallyattheseniorexecutiveandboardlevels. Insurers’senior-levelleadershipwillneedtounderstandandaligncompanypolicieswith therisksthatawarmingclimateposes. ñ Issue a Comprehensive, Public Corporate Policy on Climate Risk Asriskcarriers,riskmanagersandmajorinvestors,everyinsurershoulddevelopandissue apublicclimateriskmanagementpolicyforthebenefitoftheirshareholders,policyholdersand employees.Suchstatementsneedtoarticulatethecompany’sunderstandingofclimate science,GHGreductiongoals,considerationofclimateriskinunderwritingandinvestment management,andacommitmenttopublicengagementonclimateriskissues. ñ Integrate Climate Risk into ERM Frameworks InsurersmustaccountforclimaterisksintheirERMandriskassessmentmethodologies. Incorporatingclimatechangeasanemergingriskwillhelpinsurerscatalyzemoreeffective responsesacrosstheirenterprises. ñ Improve Climate Change Scenarios and Impact Assessments Apartfromcatastrophemodeling,whichhasremainedprimarilyaproperty/casualtyrisk managementtool,theproliferationoflarge-scaleclimatescenarioprojectionsoftware, whencombinedwithinsurerunderwritingdata,willhelpindevelopinglossscenariosthat directlyfeedintoinsurerproductofferingsandpricing.Allinsurersshouldbeseekingout suchmodelingproducts,andwhennoneareavailable,workwithleadingclimateand publichealthexpertstodevelopappropriatetools. ñ Evaluate Climate Risks and Opportunities in Investment Portfolios Asmajorinstitutionalinvestors,insurersaresignificantlyexposedtoclimaterisks,both relatedtoclimaticchangesandcarbonregulation.Insurerswillneedtounderstandand accountfortheseexposures.Toremaincompetitive,companieswillalsoneedtounderstand andinvestinnewopportunitiessuchasgreenbondswhichprovideattractivereturnsand opportunitiesfordiversification.

EXECUTIVE SUMMARY 9 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ñ Engage with Key Stakeholders on Climate Risk Insurersthattakeactionontherecommendationsabovewillfinditbothprudentand profitabletoaddressclimateriskissueswiththeirkeystakeholders:policyholders,regulators, investors,brokers/agents,andpolicymakers.Sucheffortsincludeadvocatingforinvestments inresilientpublicinfrastructureandclimateresearch,educating policyholdersregarding howtheycanmitigateclimaterisksintheirhomesandbusinesses, andpromotingclimate- smartinsuranceproducts. ñ Provide Comprehensive Climate Risk Disclosure to Regulators Intheinterestsoftransparencyandsupportingevaluationsofeachspecificinsurance company’smanagementofitsclimaterisks,insurersshouldmakeeveryefforttoprovide comprehensiveinformationpublicly. ñ Participate in Joint Industry Initiatives on Climate Risk Insurersinterestedinaddressingtheirclimaterisksaffirmativelyhavesubstantialresources available.Insurerscanjoinanynumberofclimate-focusedgroups,including Ceres’ InvestorNetworkonClimateRisk(INCR) ,the UnitedNations EnvironmentProgram FinanceInitiative’sPrinciplesforSustainableInsurance (UNEPFIPSI) and ClimateWise .

Key ReCommenDatIonS FoR RegulatoRS ñ Mandate Climate Risk Disclosure In All States Stateinsuranceregulatorsinall50statesshouldrequireinsurerstofileclimaterisk disclosuresurveyresponsesinordertogainamorecompletepictureofeachinsurer’s climateriskmanagementstrategies.Regulatorswillalsoneedtomoreconsistentlyengage withinsurersonthedisclosureprocessandthesubstanceofthesurveyresultssothatthe valueofthesurveyisfullyrealized. ñ Develop an Improved Climate Risk Disclosure Survey Whilethesurveyisusefulforelicitinginsurerresponses,therearewaysitcouldbeimproved intermsofitsclarity,comprehensivenessandfairness.Forexample,thecurrentsurvey questionsdonotaccountforuniqueclimaterisksandopportunitiesfacingnon-P&Cinsurers. MorenuancedsurveyquestionsorientedtowardsL&Aandhealthinsurerswouldimprove theirunderstandingandresponsestoclimaterisk. ñ Advocate for Rating Agency Evaluations of Climate Risk Management RegulatorsshouldworkwithratingsagenciessuchasA.M.Besttodevelopformalevaluative measuresofinsurers’climateriskmanagementprograms.Standard&Poor’shasbeen evaluatinginsurers’ERMframeworksforanumberofyears,yettheirevaluativeframework doesnotincludespecificcriteriaonhowclimaterisksareintegratedintotheseframeworks. Regulatorsshouldengagewithindustryratingsagenciestoaddressthisoversight. ñ Provide Insurers with Comprehensive Climate Science Resources Theresponsesfromallthreeinsurancesegmentsshowedthatmanyinsurersareeither uninformedordismissiveofclimateriskstotheirbusinesses.Creatingadatabaseof insurance-relevantandpeer-reviewedclimatescienceresearchwouldprovideauseful, scientificbasisforfurtherindustryactiontoaddressclimaterisks.

EXECUTIVE SUMMARY 10 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations CHAPTER 1 A More Hazardous Operating Environment

InMarch2014theIntergovernmentalPanelonClimateChange(IPCC)issuedareport, Climate Change 2014: Impacts, Adaptation and Vulnerability, whichmakesclearthatclimate changeeffectsare“alreadyoccurringonallcontinentsandacrosstheoceans”andthatthe worldforthemostpartispoorlypreparedforclimatechangerisks. 13 Whiletherearestill opportunitiestoreduceourcollectivevulnerability,optionsforeffectiveactiontomitigate theseriskswilldiminishgreatlythelongersubstantiveactionisdelayed. TheIPCCreportoutlineshowclimaterelatedrisksarebecomingincreasinglyclear,though predictingfutureimpactsremainsuncertain.Observedimpactshavealreadyaffected agriculture,watersupplies,andhumanhealthalongwithlandandoceanecosystems. Closertohome,theU.S.governmentreleaseditsthird National Climate Assessment inMay 2014showingthatglobalwarming-relatedproblemsarealreadyaffectingordinaryAmericans andcallingformoreactiontoreducegreenhousegas(GHG)emissions. 14 Thisassessment, themostcomprehensivereviewofclimateimpactsintheU.S.inoveradecade,included contributionsfrom13federalagenciesandmorethan300scientistsandexperts,aswellas inputfromthebusinesscommunity. ThereportnotesthataverageU.S.temperatureshaverisen1.5degreesFahrenheitsince recordkeepingbeganin1895, 15 with80percentofthatwarmingoccurringsince1980. TemperatureincreasesarealreadyimpactingAmericansinsectorsrangingfromconstruction andtransportation,toagriculture,forestryandpublichealth.Thereportwarnsofincreasingly destructiveconditionsinthefuture. Extremeweatherandrisingsealevelsarealreadydamagingcrucialinfrastructureinmany U.S.regions.Climatechangeisalsodisruptingnaturalsystemsthatprovideimportantprotective bufferssuchasfloodcontrolandwatershedmaintenance.Morewildfires,decreasedairquality, insect-bornediseasesandfood-andwaterbornediseaseswilltakeanincreasingtollonhuman health,especiallyamongchildren,theelderlyandothervulnerablepopulations. Thereportnotesthatmanycoastalcommunities,especiallyalongtheAtlanticCoastandGulf ofMexico,havebarelybeguntoprotectshorelinesfromrisingseas,whilemanyareasinthe SoutheastandSouthwestarenotwellpreparedforanticipatedwatershortages.

13 IPCCpressrelease,“IPCCReport:Achangingclimatecreatespervasiverisksbutopportunitiesexistforeffectiveresponses,”March31,2014,1, http://www.ipcc.ch/pdf/ar5/pr_wg2/140330_pr_wgII_spm_en.pdf . 14 USGlobalChangeResearchProgram, Third National Climate Assessment , http://www.globalchange.gov/what-we-do/assessment . 15 BrianClarkHoward,“FederalClimateChangeReportHighlightsRisksfor Americans,”May6,2014, National Geographic Daily News , http://news.nationalgeographic.com/news/2014/05/140506-national-climate-assessment-science/ .

11 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 1.1 hIgheR pRopeRty loSSeS FRom extReme WeatheR HurricaneSandywasapowerfulreminderofthegrowingrisksfromhighersealevelscausedby climatechange,incombinationwithintensestormevents.The2012hurricaneslammed intoNewYorkCitywithastormsurgeofalmost14feet. 17 Theregion’sinfrastructureandmany buildingswereincapableofsurvivingtherecordflooding,causingsignificantdamage,human upheavalandmorethan$50billionindirectdamages. 18 Coastalfloodingfromsucheventswill beamuchbiggerissueinthefutureduetohigherseas,especiallyalongtheU.S.Atlanticcoast. “In some high-risk areas, ocean warming and climate change threaten the insurability of catastrophe risk more generally. To avoid market failure, the coupling of risk transfer and risk mitigation becomes essential.” 19 Warming of the Oceans and the Implications for the Re(Insurance) Industry, The Geneva Association “The prospect of extreme Extremeweatheriscausinghigherlossesacrosswiderangingsectors,includingagriculture. climate change and its In2012,theFederalCropInsuranceProgram(FCIP)paidarecord$17.3billionincroplosses potentially devastating duetoadevastatingdroughtandrecordtemperatures. 20 Withdroughtconditionsexpectedto economic and social becomemorecommon,record-breakingfederalinsurancepayoutswilllikelycontinuetoincrease. consequences are of great concern to the Extremeweatherisalsoexacerbatingsupplychainrisks.ThemassivefloodinginThailand,a insurance industry.” 16 productionhubformanyglobalbusinesses,in2011severelyimpactedglobalpartssuppliers The Geneva Association, forkeysectors,includingtheautomotiveandelectronicindustries.Thisresultedinanestimated May 2014 $15-20billioninlosses,impactingtheprofitabilityofmajormultinationalcorporationsaround theglobe,includingCisco,Dell,Ford,Honda,HP,Toyotaandothers. 21 Thecombinedeffectsofincreasingurbanizationandclimatechangearedrivinghigherannual losses(bothinsuredanduninsured)fromnaturalcatastrophes,andthesetrendsareexpected totranslateintofuturelossesofhighermagnitudes.Globaloveralllossesfromnaturalcatastrophes were$125billionin2013,including$31billion ininsuredlosses.Whilelossesin2013were below2011and2012,overthepast30years(andcontrollingforinflation),annuallosses fromnaturalcatastropheshavecontinuedtoincreasewhiletheinsuredportionhasdeclined, leavinggovernments,businessesandindividualstoabsorbabiggershare.(SeeFigure1.1)

16 InsurersthataremembersoftheGenevaAssociation—aninsurancethinktank—havegrosswrittenpremiumofmorethan$2.1trillionand headquartersin27countries. 17 MargaretOrr,“New‘PotentialStormSurgeFloodingMap’aimstopreventdeathsduringhurricaneseason,” WDSU News ,March25,2014, http://www.wdsu.com/news/local-news/new-orleans/new-potential-storm-surge-flooding-map-aims-to-prevent-deaths-during-hurricaneseason/25157598#ixzz32wTzN6q7 . 18 DavidPorter,“HurricaneSandyWasSecond-CostliestinU.S.History,ReportShows,” Huffington Post ,February12,2013. http://www.huffingtonpost.com/2013/02/12/hurricane-sandy-second-costliest_n_2669686.html . 19 GenevaAssociation, Warming of the Oceans and Implications for the (Re)insurance Industry ,June2013.Accessedat: https://www.genevaassociation.org/media/616661/ga2013-warming_of_the_oceans.pdf 20 “Record-Breaking$17.3BillioninCropLossesLastYear;SignificantPortionPotentiallyAvoidable,”NaturalResourcesDefenseCouncil, http://www.nrdc.org/media/2013/130827.asp . 21 JoyceCoffee,“SupplyChainsintheFaceofaChangingClimate,”TheEnvironmentalLeader,April30,2014. http://www.environmentalleader.com/2014/04/30/supply-chains-in-the-face-of-a-changing-climate /.

CHAPTER1 12 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations FIguRe 1.1: InSuReD & unInSuReD global WeatheR-RelateD loSSeS (1970 - 2013)

Ⅵ Insured Losses Ⅵ Uninsured Losses

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e 300 c i r P

4 250 1 0 2 (

s 200 n o i l l i

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s r

a 100 l l o D

. 50 S . U 0           1970 1975 1980 1985 1990 1995 2000 2005 2010 2013 Source: Swiss Re

1.2 gRoWIng ClImate lItIgatIon thReat Thescientificandpoliticalfocusonclimatepolicy,combinedwithgrowinglossesbeing attributedtoclimatechange,arealreadyhavinga profoundimpactonclimatelitigation. Ina2011UNEPFIreportitwasconcludedthatinasingleyeartheworld’s3,000largest publiccompanieswerecausinganestimated$1.5trillionofenvironmentaldamagedirectly duetoGHGemissions. 22 About60percentofthesenegativeimpactswerefromtheelectricity, oilandgas,industrialmetalsandmining,foodproduction,andconstructionandmaterials sectors. 23 Manyentities,includingmajoremittersofGHGs,alongwithlocal,stateandfederal governments,arealreadybeingheldlegallyaccountableforthedamages. In2011,theSupremeCourtofVirginiabecamethefirststatecourttomakeadetermination inaglobalwarminginsurancecoveragelawsuit. 24 Theinsurancecoveragedisputestemmed fromclaimsfiledbytheInupiatEskimoVillageofKivalina,Alaskaagainstnumerouscoal-burning utilities,acoalproducerandenergycompanies(includingAESCorporation)fordamages allegedlyrelatedtoclimatechange. 25 TheVillageofKivalinaassertedthatglobalwarmingwas ruiningthecommunityduetomeltingArcticseaicethatformerlyprotecteditfromwinter storms.AESsoughtadefenseintheKivalinalawsuitundermultipleinsurancecontracts issuedbySteadfastInsurance.Steadfastultimatelydeniedcoverageandfiledadeclaratory judgmentactioninVirginiastatecourt.

22 UnitedNationsEnvironmentProgrammeFinanceInitiativeandPrinciplesforResponsibleInvestmentAssociation, Universal Ownership: Why Environmental Externalities Matter to Institutional Investors (NewYork:UNEPFinanceInitiative,October2010),25, http://www.unepfi.org/fileadmin/documents/universal_ownership_full.pdf . 23 Ibid,27. 24 Hunton&Williams, Insurance Coverage For Climate Change Cases After AES Corp. v. Steadfast Ins. Co,, October2011, http://www.hunton.com/files/News/7d354c22-37b5-413b-a4e8-ae49c456e272/Presentation/NewsAttachment/4a3cfd62-f5f6-459d-a37b- 5295b3ab7eb8/insurance_lit_alert_vol_7_2011.pdf . 25 McGuireWoods, Is Negligence Still Insurable in Virginia? AES Corp. vs. Steadfast Insurance Co ,April30,2012., http://www.mcguirewoods.com/Client- Resources/Alerts/2012/4/IsNegligenceStillInsurableinVirginia.aspx .

CHAPTER1 13 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations TheVirginiastatecourtfoundinfavoroftheinsurer,concludingthat “damages caused by climate change did not constitute an “occurrence” under the policyholder’s contracts for commercial general liability insurance.” 26 Onapetitionforrehearing,theSupremeCourtofVirginiaaffirmed in2012thataninsurerhasnodutytodefendautilitycompanyagainstalawsuitallegingproperty damageresultingfromgreenhousegases(GHGs)emittedintheregularcourseofbusiness.Awin forinsurers,thecasemeansthattheenergycompanyretainsclimateliabilityrisks,whichcould impactitsshareholders(includingpotentiallyinsurersasinvestorsinthesecompanies.) Anotherexampleofclimateliability,thistimeinitiatedbyaninsurer,aroseinspring2014in theformofsubrogationagainstamunicipality.FarmersInsurance,asubsidiaryofZurich FinancialGroup,filedaclassactionlawsuitagainstnearly200Chicagoareacommunitiesfor failingtoadequatelypreparetheirsewersandstormwaterdrainsforfloodinginApril2013. AccordingtoFarmers,wastewatersystemswereoverwhelmedandpushedwaterbackinto people’shomes,causingsignificantwaterdamage.Thesuitallegedthatthemunicipalities “…state and local shouldhaveupgradedstormwatermanagementplansbecause, “they knew climate change governments are on in the past 40 years has brought rains of greater volume, greater intensity, and greater duration the front lines in both than pre-1970 rainfall history.” 27 Althoughthesuitwaswithdrawnshortlyafteritwasfiled, responding to immediate weather-related disasters therearelikelytobeadditionalnovelclaimsofclimateliabilityinthefuture. and in preparing for the Givenrecentdecisionsinclimatechangeliabilitycases,legalexpertsbelievethatfurther potential longer-term climatechangecoveragelitigationwillemergeintheprofessionalliability/errorsandomissions impacts associated with (E&O)insuranceanddirectorsandofficers(D&O)liabilityinsurancecontextsinsteadof,orin climate change…” 28 additionto,thecommercialgeneralliability(CGL)context. 29 InthecaseofE&O-andD&O- U.S. Senate Committee relatedlawsuitstiedtoclimatechange,MunichRebelievesinsurancecoverwouldapplyas on Homeland Security “…such losses are not based on climate change itself but on the fact that someone has and Governmental Affairs neglected to give the subject sufficient consideration in his or her professional activity.” 30 Recentlegalactivitieswilllikelytestthisprediction.InMay2014,theCenterforInternational EnvironmentalLaw,alongwithGreenpeaceandtheWorldWildlifeFund,sentletterstoglobal insurersinquiringwhethertheirD&Opolicieswouldprovidecoveragetoexecutivesagainst financialdamagestemmingfromclimate-relatedcourtcases.Someinsurancelawexperts believeitisplausiblethatanoilandgasexecutivewhoknowinglyprovidedmisleading informationtothepublicconcerningtheimpactsofthecompany’sGHGemissionswouldnot beprotectedbyaD&Oinsurancepolicy. 31 Thebottomline—wecananticipategrowinguncertainty,increasingthecomplexity,andawide varietyofcoverage-relatedlegalquestions relatedtoclimatechangeconfrontinginsurers, policyholdersandotherstakeholders.LawsuitsareaninevitablepartoftheAmericansystem fordeterminingwhetherandhowtocompensatefordamages,andthelargerthealleged injuriesfromclimatechange,thegreatertherecoveryeffortswillbe.Forinsurers,evenwhen policycoverageisdenied,thetransactionalcosts,suchaslegalexpenses,associatedwith theseclimatechange-relatedcoveragedisputesareverysignificant. 32

26 Ibid. 27 MichaelBuck,“FarmersInsuranceClimateChangeLawsuitSeenasTestCasebyIndustryWatchers,” Best’s News Service ,May23,2014, http://www3.ambest.com/ambv/bestnews/newscontent.aspx?AltSrc=97&refnum=174344 28 TheCenterforClimateandSecurity. Homeland Security and Climate Change: Excerpts from a Senate Hearing ,February2014, http://climateandsecurity.org/2014/02/13/homeland-security-and-climate-change-excerpts-from-senate-hearing /.Basedonwrittentestimonyof panelistsfromtheDepartmentofHomelandSecurity(DHS)andtheGovernmentAccountabilityOffice. 29 BloombergBNA, AES v. Steadfast—Still No Coverage for Climate Change Tort Suits in Virginia ,May17,2012, http://www.bna.com/aes-v-steadfast-2 /. 30 Dr.InaEbertandDr.GuidoFunke,“Climatechangeandliability—Everythingyouneedtoknowaboutclimatechangeandliability,”MunichRe. http://www.be-sure.co.il/uploaded_files/article_85.pdf 31 EvanLehmann,“Envirosquestionifinsurerswillcoverclimateriskstoexecutives,” ClimateWire ,May28,2014, http://www.eenews.net/climatewire/2014/05/28/stories/1060000250 . 32 ChristinaM.Carroll,J.RandolphEvans,LindeneE.Patton,andJoanneL.Zimlzak, Climate Change and Insurance .AmericanBarAssociation,2012.

CHAPTER1 14 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 1.3 ClImate RISK anD InSuReRS’ InveStment poRtFolIoS Globally,institutionalinvestorscollectivelymanageabout$76trillion,withinsurance companiesmanagingabout$25trillionofthetotal. 33 Sinceturningitsattentiontoclimate change,theNationalAssociationofInsuranceCommissioners(NAIC),theprimaryregulatory bodyforprivateinsurersintheU.S.,hasvoicedgrowingconcernaboutthepotentialimpact ofclimatechangeonthehealthofinsurerinvestmentportfolios. 34 Thatconcernhasescalated asseveralyearsofclimatedisclosuresurveyresultshaveidentifiedclimate-relatedinvestment strategyasakeyareawheretheindustrymostlagsbehindbestpractices. 35 U.S.insurancecompaniesarehighlyregulatedforfinancialsolvency.Therearespecific regulations,forexample,pertainingtodiversificationofinvestmentassets,restrictionsontypes ofassetsandcapitalrequirementsthatreflectinvestmentandunderwritingrisk.However,these existingregulationsmaynotadequatelyreflectemergingrisks,especiallyrisksrelatedto climatechange.Climatechangerisksmaybecharacterizedassystemictosocietyasawhole. Asaresult,inthelongtermitwillnotbepossibleforinsurerstoavoidtheseriskssimplyby diversifyingassetsorbywithholdingcoverageincertainvulnerableregionalmarkets. Thereissignificantresearchsuggestingthatclimatechangecoulddegradethevalue,credit ratingand/orliquidityoflargeportionsofinsurers’investmentportfolios. 36 Forexample, extremeweather(suchasincreasedvolatility,variabilityandseverity)willexacerbatephysical riskstorealestateassets,utilitiesandothermunicipalinfrastructureassets.Climatechange willimpactwaterscarcityandwaterqualityrisksintheagricultural,foodandbeverage, chemicalandminingsectors,aswellascommoditiescompanies. Inadditiontothedirectimpactsofclimatechange,newcarbon-reducinglegislation, requirementsandsocialconcernsdrivenbytheneedtoreduceGHGemissionswill dramaticallyimpactinvestments.Additionalsourcesofclimaterisksinclude: ñ Carbon asset risks: Investorsareincreasinglyfocusedon“strandedasset”risksinthe energysectorasidentifiedinanalysesbytheInternationalEnergyAgency,HSBC,Citi, S&PandtheCarbonTrackerInitiative,whichconcludethatatleasttwo-thirdsofproven oil,gasandcoalreservesmustremainunexploitediftheworldistoavoidpotentially catastrophicglobalwarming.Ifgovernmentsstrengthencarbonemissionsregulations, fossilfueldemandwilllikelydecrease,makingitmoreuneconomicaltoextractthose reservesandpotentiallystrandingthoseassets. 37 ñ Other “stranded/devalued asset” risks: Investmentsinpublicwaterutilities,primarily throughthepurchaseofbondsissuedbythoseutilities,alsoposesfinancialrisks.For example,duetoclimateandpopulationstressesonwatersupplies,largewatersupply infrastructureprojectswithbondfinancingmightbecomeunabletoobtainandsell enoughwatertopaythedebtserviceonthebonds.Otherassetsatriskofbecoming strandedincluderealestateassetsthreatenedbyrisingsealevels,agriculturallandno longerarableduetomorearidconditionsandtimberpropertiesvulnerabletowildfires.

33 ClimatePolicyInitiative(CPI),“TheChallengeofInstitutionalInvestmentinRenewableEnergy,”March2013,7. http://climatepolicyinitiative.org/wp- content/uploads/2013/03/The-Challenge-of-Institutional-Investment-in-Renewable-Energy.pdf . 34 NationalAssociationofInsuranceCommissioners, The Potential Impact of Climate Change on Insurance Regulation ,2008, http://www.naic.org/documents/cipr_potential_impact_climate_change.pdf . 35 Ceres, Insurer Climate Risk Disclosure Survey 2012 ,2012, http://www.ceres.org/resources/reports/naic-report/view . 36 PartnershipwithCambridgeUniversityandIIGCC,UNEPFI,“ClimateChange:ImplicationsforInvestorsandFinancialInstitutions,”June24,2014, http://www.unepfi.org/fileadmin/publications/cc/IPCC_AR5__Implications_for_Investors__Briefing__WEB_EN.pdf . 37 CarbonTrackerInitiative, Unburnable Carbon 2013: Wasted capital and stranded assets , http://www.carbontracker.org/site/wastedcapital .

CHAPTER1 15 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ñ Reputational risk: Reputationalriskmayimpactcompaniesinwhichinsurersholddebtor equity.Insurers’investmentportfoliosmayalsobecomeafocusforconsumers/policyholders, especiallygivenmountingpressurebygrassrootscampaignsoninstitutionalinvestorsto assesstheirexposureanddivestinfossilfuel-relatedcompanies. 38 Climatechangealsopresentssignificantpositiveopportunitiesforforward-thinkinginvestors. Cleanenergyinvestmentsoffer insurersanopportunitytodiversifytheirportfolios,whilealso counteringmanyoftheriskslisted above.Theemerginggreenbondsmarketisanespecially attractiveinvestmentopportunityforinsurers.Investinginenvironmentallybeneficialgreen “If instruments and bondsoffersinsurersseveralbenefits,includingstable,risk-adjustedreturnsthatfitwithin opportunities exist that existinginvestmentcriteria;positiveimpactonthetransitiontoacleanenergyeconomyand provide market returns as otherenvironmentalbenefits;andaleadershiproleinfinancialmarketsolutionstourgent well as tangible measurable climateissues. 39 environmental impacts, then I think [green bonds are] a great investment opportunity.” 1.4 ClImate RISK DISCloSuRe: What RegulatoRS anD InveStoRS neeD to KnoW Cecilia Reyes, group chief investment officer at Zurich, Insum,climatechangeposeswide-rangingriskstotheoperatingperformanceandfinancial speaking at the UN Investor stabilityoftheinsurancesector.Thedegreetowhichaninsurancecompanyismanaging Summit on Climate Risk in theserisksultimatelyneedstobeincorporatedintotheanalysesofratingagencies, suchas January 2014 A.M.Best,forthebenefitofinvestors,policyholdersandotherstakeholders.Atpresent, A.M. Bestusesmanyquantitativemetricsinitsinsurancecompanyratingsanalysis,andalso emphasizestheimportanceofqualitativeratings. 40 Forexample,belowareselected factors relatedtoinsureroperatingperformanceandbusinessprofilethatA.M.Bestconsiders when evaluatingcompaniesqualitatively.Howaninsureraddressesitscurrentandfutureclimate changerisksaredirectlyrelevanttoeachofthesefactors.

38 IMPAXAssetManagement,“BeyondFossilFuels:TheInvestmentCaseforFossilFuelDivestment,” http://350nyc.files.wordpress.com/2013/08/impax-investment-case-for-fossil-fuel-divestment-us-final-1.pdf . 39 “ZurichMakesaSignificantCommitmenttoGreenBonds,”InterviewofCeciliaReyes,CIO. http://www.zurich.com/2013/en/annual-review/how-we-do- it/commitment-to-green-bonds.html . 40 AonBenfieldAnalytics, Update from A.M. Best’s 2014 Review & Preview Conference ,March2014, http://thoughtleadership.aonbenfield.com/Documents/20140326_ab_analytics_ambest_reviewandpreview_conference .

CHAPTER1 16 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations a.m. beSt QualItatIve metRICS FoR InSuReR RatIng analySIS & ClImate Change thReatS

operating performance Climate Change threats & business profile Factors Significantly increases future uncertainty and unpredictability of both Stability of underwriting underwriting and investment risks; physical damages and economic & investment results impacts may become more highly correlated. Emerging risks and opportunities require strengthened underwriting underwriting skills and challenge rate adequacy. & adequacy of rates Key markets, especially coastal areas, may become less insurable, thereby increasing market competition and downward rate pressure.

loss reserve Adverse loss development related to climate litigation, especially in D&O development patterns liability and E&O liability, may force significant reserve strengthening.

Insurers must augment existing CAT models to include forward looking loss predictive analytics / scenarios based on the latest climate science and encompassing a wide range catastrophe modeling of perils, e.g., sea-level rise, storm surge, wind, intense precipitation, heat etc.

Spread of risk Insurers that have high concentrations of insured property in a given (geography, line, location/region, e.g., coastal, or product line, e.g., D&O liability for oil & gas distribution) sectors, will be highly exposed to large losses and/or market uninsurability.

Reputational risk from non-renewal of policies, broad marketplace withdrawal, business reputation / and denial of coverage. Reputational risk related to GHG producing companies public image in which insurers hold debt or equity (failure to adequately consider and address ESG risks is a growing concern for many companies.)

Inconclusion,andofkeyimportancetoregulatorsandinvestors,insurancecompaniesthat leadindevelopingbusinessstrategiesthatholisticallyaddressescalatingclimateriskswillbe significantlybetterabletomanagewide-rangingandincreasingthreatsfromawarmingworld.

CHAPTER1 17 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations CHAPTER 2 Overall Scoring Results

2.1 RepoRt objeCtIve ThegoalofCeres’analysisoftheClimateRiskDisclosureSurveyresponsesistoprovide insurers,regulators,investorsandotherstakeholderswithsubstantiveinformationaboutthe risksandopportunitiesinsurersfacefromclimatechangeandthestepsinsurersaretaking inresponsetothoserisks.Whileallinsurersurveyresponsesarepubliclyavailable, 41 Ceres believesthatstakeholders benefitfromananalysisthatdistillsindustrytrendsandcompany specificfindingsfromthelargevolumeofsurveydata,andprovidesrecommendationsfor insurersandregulatorstomoreeffectivelymanageclimaterisks.Anadditionalgoalofthis reportistoprovideconcreteexamplesofleadingcompanyclimateriskmanagementpractices andthebusinesscasefordoingso.

2.2 SCoRIng methoDology Ourreportandinsurerscorecardisbasedon330ClimateRiskDisclosureSurveyresponses 42 submitted byinsurersdoingbusinessinCalifornia,Connecticut,Minnesota,NewYork,and Washington. 43 Theeight-questionSurveywasfirstadoptedbytheNAICin2010,andhassince expandedinboththenumberofstatesrequiringdisclosureanditsreportingthresholds.Forthe 2012reportingyear,whichthisreportcovers,insurancecompanieswithdirectwrittenpremiums over$100millionwererequiredtofilloutthesurveyandsubmittheirresponsesinAugust2013. 44

table 2.1: evolutIon oF InSuReR ClImate RISK DISCloSuRe SuRvey & CeReS RepoRt

Reporting participating Reporting # of Insurer Ceres Report Ceres Survey Report methodology year States threshold* Respondents Release Date

>$500m CA, NJ, NY, • Qualitative assessment 2010 Voluntary 88 Sept. 2011 OR, PA, WA • Insurers not scored reporting >$300m • Quantitative scoring 2011 CA, NY, WA Mandatory 184 Mar. 2013 • Individual company scores not publicly released reporting >$100m CA, CT, • Quantitative scoring and performance rankings 2012 Mandatory 330 Oct. 2014 MN, NY, WA • Individual company ranks publicly released reporting *Allreportingthresholdsarebasedonannualinsurerdirectpremiumswritten.

41 Surveyresponsesareavailablefordownloadat: https://interactive.web.insurance.ca.gov/apex/f?p=201:1:15903647584628::::: . 42 Duetoalargevolumeofduplicateresponsesfromsubsidiarieswithininsurancegroups,thetotalnumberoffilingswas1064; https://interactive.web.insurance.ca.gov/apex/f?p=201:1:0::NO . 43 SeeAppendixBforthe“ClimateRiskSurveyGuidanceforReportingYear2012”documentforallquestionsandsub-questionsforthe2014Survey. 44 Thereportingyear2011ClimateRiskDisclosureSurveywasrequiredbythestatesofCalifornia,NewYork,andWashingtonforcompaniesthatreported NationwideDirectWrittenPremiumsinexcessof$300million.Thus,thisreportincludesabroaderrangeofcompanies,with184individualfilingsforthe 2011Surveycomparedto330in2012,offeringamorecomprehensiveviewoftherangeofactionsinsurersaretakinginresponsetoclimaterisk.

18 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Giventhesignificantlyhighernumberofinsurersreportingin2012,theimprovedsurvey format, 45 andthegreatlyimprovedaccessibilityoftheinformation(whichisnowavailableon theCaliforniaInsuranceDepartmentwebsite) Ceresrevisedandsimplifieditsscoring methodology fromtheapproachusedinpreviousyears. Inordertoprovideastandardizedcomparisonbetweencompanies,Ceresassignedapoint valuetoeachquestionandsub-questionofthesurvey. 46 Thepointsassignedtoeach questionwereweightedbasedonitsrelativeimportancetoacompany’scapacitytomanage climaterisks.Forexample,enterprise-wideclimateriskmanagement(Surveyquestionsthree, fourandfive)ismorematerialtoaninsurancecompany’smanagementofclimaterisksthan isacompany’sinternalgreenhousegasmanagementpolicy(Surveyquestionone),sopoint valueswereweightedaccordingly.WeightingsalsodifferedbetweenProperty&Casualtyand Life&Annuity/Healthinsurerssincesomeofthesurveyquestionswerenotdirectlyrelevant toL&A/Healthinsurers. Insurancecompanyresultsarereportedaccordingtofourperformancebands,orratings, providingatoolforcompaniestoassesstheirperformancerelativetotheirpeersandtolearn fromtheclimate-relatedinitiativesthatothersareadopting.Ifacompanyperformsbetterthan itspeerswithregardtoaspecifictheme,itdoesnotnecessarilymeanithasfullyimplemented leadingpractices.However,thesescoreshighlightclimateriskleadersintheinsuranceindustry , aswellasthosecompaniesthathavemoreroomtoimprove.Thecompletelistofinsurer ratingscanbefoundinAppendixA.Thereportalsoincludesmanyexamplesofindustry- leadingpractices.

When evaluating survey responses, Ceres looked for examples of concrete actions implemented by insurers with respect to each of the survey questions and sub- questions. Companies also earned points based on the overall quality of their survey responses in terms of whether all eight questions were answered completely and comprehensively. Ultimately, all scores were determined based on companies’ performance as disclosed in their survey responses , and thus, Ceres’ analysis is inherently dependent on the quality of disclosure. 47

TheScoringFrameworkOverview(Table2.2)presentsthesurveyquestionsaswellasthe thematicorganizationofourscoringapproach.

45 The2011and2012Surveys,whendistributedtoinsurersrequiredtorespond,includedadocumententitled“ClimateRiskSurveyGuidance”,that wasdesignedtooffermorespecificguidancetoinsurersinrespondingtotheSurveyquestions.Thisdocumentincluded“questionstoconsider”that expandoneachoftheeightprimaryquestionsinordertodrawoutmorespecificityfromcompanyresponses,andCereshasusedthosesub-questions asguidelineswithwhichtoassessinsurers. 46 Forafulllistofquestionsandsub-questionsseeAppendixB 47 Thisreportandtheassociatedscorecardsexclusivelyreflectinformationprovidedbyinsurersthroughthe Climate Risk Disclosure Survey issuedby theNAIC.Foranassessmentofcorporatesustainabilityperformancebasedonabroadrangeofpublicdisclosures,pleasereferto Gaining Ground: Corporate Progress on the Ceres Roadmap for Sustainability accessibleat http://www.ceres.org/gainingground .

CHAPTER2 19 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations table 2.2: SCoRIng FRameWoRK oveRvIeW Survey Question text Question #

theme 1: Climate governance

Does the company have a climate change policy with respect to risk management 2 and investment management?

theme 2: enterprise-Wide Climate Risk management

Describe your company’s process for identifying climate change-related risks and assessing 3 the degree that they could affect your business, including financial implications. Summarize the current or anticipated risks that climate change poses to your company. 4 Explain the ways that these risks could affect your business. Include identification of the geographical areas affected by these risks. Has the company considered the impact of climate change on its investment portfolio? 5 Has it altered its investment strategy in response to these considerations? If so, please summarize steps you have taken. theme 3: Climate Change modeling & analytics

Describe actions the company is taking to manage the risks climate change poses to your 8 business including, in general terms, the use of computer modeling.

theme 4: Stakeholder engagement

Summarize steps the company has taken to encourage policyholders to reduce the losses caused 6 by climate change-influenced events.

Discuss steps, if any, the company has taken to engage key constituencies on the topic 7 of climate change.

theme 5: Internal greenhouse gas management Does the company have a plan to assess, reduce or mitigate its emissions in its operations 1 or organizations? theme 6: Quality of Climate Risk Disclosure & Reporting

n/a The company answered all eight questions completely and comprehensively.

Asshowninthetableabove,Cereshasre-orderedthesurveyquestionsandgroupedthem basedontheirrelativeimportanceineffectiveclimateriskmanagementbyinsurers.Inthis regard, corporate governance isofgreatimportanceinmanagingclimaterisk,sincesenior managementandboardsofdirectorssetcompanies’prioritiesandpolicies,andcaneffectively driveclimaterisk-relatedinitiativesacrosstheorganization. Enterprise-wide climate risk management characterizeswhetherinsurersareaddressingclimateriskacrossbothsidesof theirbalancesheets—underwriting/insurancerisk,andinvestmentrisk.Thethird themeis climate change modeling and analytics ,whichassessesdiscloseduseofcatastrophemodeling andotherdigitalriskmanagementtoolsthatallowforquantificationofriskandstresstesting ofinsurersolvencyundervariouspossibleclimatescenarios.The stakeholder engagement themeassessesinsurers’effortstoencouragepolicyholderstoreduceclimaterisks,aswellas

CHAPTER2 20 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations insurers’supportofresearchandpubliceducationefforts.Lastly,while internal greenhouse gas (GHG) management isimportant,insurersfacemuchgreaterclimaterisksrelatedto theirunderwriting/pricingandinvestmentportfolios.Thelastthemeis climate risk disclosure and reporting .

Rated Results Thisreportusesafour-tierapproachforratinginsurers’responsestosurveyquestions. Theratingsarearrangedinahierarchyasfollows: Top Quartile Rated Insurers =LeadingPractices Second Quartile Rated Insurers =DevelopingPractices Third Quartile Rated Insurers =BeginningPractices Fourth Quartile Rated Insurers =MinimalInformation

ClImate RISK management RatIngS hIeRaRChy

minimal beginning Developing leading

The insurer provided only Survey responses indicate Survey responses indicate a Survey responses indicate a limited amount of detail, a basic understanding of solid understanding of climate a comprehensive and deep omitted answers to survey climate change, but a lack change and the company understanding of climate questions, or survey responses of a comprehensive strategy has started to develop and change risks and opportunities indicated a disregard for the to address the myriad risks implement comprehensive and the company has risks climate change presents and opportunities. strategies in selected implemented relevant to the company’s lines functions. strategies, monitors and of business. measures progress, and has developed accountable climate risk governance at both senior management and board levels. Insurers were assigned to one of four ratings based on their score.

Inordertomakemoregranularcomparisons,thisratingapproachwasappliedacrosseach ofthesixthemesidentifiedabove.Forexample,acompanythatwasratedLeadingin “ClimateChangeModeling&Analytics”maynothaveearnedaLeadingratinginanother category.Thisdetailedanalysisallowsfortheidentificationofstrongpracticesinparticular businessareas,aswellasthoseinneedofimprovement.

Report Structure Chapter3,focusingontheProperty&Casualty(P&C)insurerresponses,isstructured accordingtothethemeslistedinTable2.2ScoringFrameworkOverview(page20),and offersacomprehensiveanalysisoftheP&Cinsurers’responses.Chapters4and5,evaluating surveyresponsesofthelifeandannuity(L&A)andhealthinsurancesegments,areless comprehensivethantheP&Csection,fortworeasons.TheprimaryreasonisthattheClimate RiskDisclosureSurveyisnotablyorientedtowardP&Cinsurers,andthusitwasnot methodologicallyappropriatetoplacetoomuchemphasisonnon-P&Cinsurers’responses toapartiallyinapplicablesurvey. 48 Furthermore,theL&Aandhealthinsurersgenerallyscored poorlyonthesurvey,andthustherewerefarfewerleadingpracticeexamplestodrawupon comparedtotheP&Csegment.Chapter6offersspecificrecommendationsforinsurers andregulatorsforimprovingtheirrespectiveresponsestoclimaterisksinthefuture.

48 SeeChapter6,Recommendations,formoredetailontheP&Corientationofthesurvey.

CHAPTER2 21 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 2.3 pRoFIle oF InSuReRS In the SuRvey WiththeadditionofConnecticutandMinnesotamandatingclimateriskdisclosure,aswell astheexpandedreportingthresholdacrossallfivereportingstates,thisyear’ssurveyreport covers 87 percent of the U.S. insurance market (basedon2012directpremiumswritten) , asshowninFigure2.1below. 49

FIguRe 2.1: peRCent oF InDuStRy SubmIttIng 2013 ClImate RISK DISCloSuRe SuRveyS by 2012 DIReCt pRemIumS WRItten

not Included, $149b (13%)

health $104b (11%) Survey Respondents property & $989b Casualty (87%) life & annuity $468b $417b (47%) (42%)

Sources: US Treasury, Annual Report on the Insurance Industry, June 2013, AM Best and NAIC data.

market Segment AspartoftheClimateRiskDisclosureSurvey,insurersarerequiredtoself-reporttheirmarket segment. 50 Basedonthisinformation,outofthe330companyresponses,welloverhalf(193 companies)oftheinsurerswereproperty &casualty(P&C),nearlyone-third(92companies) werelifeandannuities(L&A),andaboutone-tenth(45companies)werehealthinsurers.

FIguRe 2.2: type oF InSuReR ReSponDIng to ClImate RISK DISCloSuRe SuRvey

property & Casualty 193

life & annuity 92

health 45

0 20 40 60 80 100 120 140 160 180 200 Number of Insurers ( Total Companies = 330)

49 Intheabsenceofinsurer-reporteddirectpremiumswrittendataintheClimateRiskDisclosureSurvey,Ceresderivedfiguresbasedonmultiplesources ofdata:USTreasury,AnnualReportontheInsuranceIndustry,June2013,aswellasA.M.BestandNationalAssociationofInsuranceCommissioners (NAIC)figures. 50 Whilethe2011Surveyreportincludedafourth“Multiline”segmentcategory,forthe2012report,Cereshasdeterminedthatthekeyvariablethat generallydeterminesacompany’sperceptionofclimateriskiswhetherthecompanyunderwritespropertyornot.Thus,thisreporthasaggregated thosegroupinsurerswhoindicatedthattheyareP&C,butalsounderwriteanotherlineofbusiness,beitHealth,orLife&Annuity,intotheP&Csegment.

CHAPTER2 22 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Company Size Companieswerecategorizedbysizebasedontheir2012directpremiumswritten(DPW): Large – $5billionandabove; Medium – $1billionto$5billion; Small – $300millionto$1billion ; and Very Small – $100millionto$300million.TheLargegroupcomprised15percentofthe 330respondingcompanies;theMediumgroupwas24percent;Smallcompaniescomprised 30percent:andtheVerySmallgroupmadeup31percent. 51

2.4 oveRall InSuReR peRFoRmanCe Figure2.3depictsthespreadofscores,groupedbyratingscategory,acrossallmetrics.Overall, nineinsurers (including twobasedintheU.S.),or3percentofthetotal,earnedaLeading rating,while45insurersearnedtheDevelopingrating.Thevastmajorityofinsurers(276insurers ) earnedonlyenough pointsfortheBeginningorMinimalratings.

FIguRe 2.3: DIStRIbutIon oF SCoReS by RatIng

minimal beginning Developing leading 90 80 86 70 s 73 r e r

u 60 s

n 60 I

o 50

r e

b 40 m 40 u 39 N 30 20

10 13 108 1 0 4 5 Ⅵ property & Casualty Ⅵ life & annuity Ⅵ health

51 Thechangeinthereportingthresholdto$100millionindirectpremiumswrittenhasexpandedthe2012samplenotably,andincreasedtheshareof smaller,primarilyregionalinsurerscomparedtolastyear.Thismeansthatmanyinsurersarereportingforthefirsttime,whichmightexplainsomeof thepoorscores.

CHAPTER2 23 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Figure2.4showsaclearcorrelationbetweeninsurersizeandsurveyperformance,withlarge insurersacrossallthreesegmentspostingsignificantlyhigheraveragescoresthantheirsmaller counterparts.Inthischart,thesizeofthebubblereflectsthetotaldirectpremiumswrittenby allinsurerswithinthatparticularcompanysizegrouping.

FIguRe 2.4: aveRage SCoReS by InSuReR Segment & SIZe Ⅵ property & Casualty Ⅵ life & annuity Ⅵ health g

n The size of each bubble represents the aggregated 2012 DPW of all insurers i

d in that insurance segment and ﬁnancial size category. a e l g n i p g o n l i t e a v $319b e R

D e g a r g e n i v n

A $98b n i

g $346b e

b $13b $37b $64b l a m

i $56b

n $7b i $2b $31b m $5b $11b $100m-300m $300m-1b $1b-5b $5b+ Insurer Size by Direct premiums Written (2012 DpW)

the Inﬂuence of Size and market Segment Thestrongerperformanceoflargeinsurerscanbeattributedtoarangeoflikelyfactors,including accesstomoreresourcestofundriskmanagementprograms,andgreatercapacityfor engagementwithexternalstakeholdersandthepubliconclimaterisktopics.Generally,larger insurersareexposedtoagreaterrangeofriskssincetheywritepoliciesonabroadergeographical scale;asaresult,theyarepositionedtoobservetrendsmoreeasilythansmallerregionalinsurers. Additionally,P&CinsurersareclearlypullingawayfromtheirL&Aandhealth counterpartsin termsofsurveyperformance.Theproperty-relatedimpactsofclimatechange havelongbeen afocusofresearch,andtheP&Csegmentisgenerallyawareofthesefindings. However,L&Aandhealthinsurersarenotimmunefromclimatechangeimpacts.Morefrequent andstrongerheatwaves,droughts,floodsandsevereweathereventsresultingfromachanged climate canincreasebothmorbidityandmortalitytrends.Extensivepropertydamagefrom extremeweathereventsalsohasanimpactonstateandlocalgovernmentsandtheirbudgets, bothinthenearandlonger-term,possiblyimpactingbond-ratings.This,alongwithdeclining realestatevalues,couldbedetrimentaltolifeinsurers’investmentportfolios.

CHAPTER2 24 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations year-over-year Comparisons InMarch2013,Ceresreleasedthe Insurer Climate Risk Disclosure Survey Report: 2012 Findings & Recommendations basedonasurveyof184uniqueinsurancecompanydisclosure filingsforthe2011reportingyearascomparedto330uniqueinsurerresponsesforthis report.Althoughthesetworeportssharethesamename,methodologicallytheyarevery different,andthereforeCeresislimitedinmakingyear-over-yearcomparisons.Chapter3.7 describestheonlydirectcomparisonmadeinthisreport—thenumberofinsurerswithpublic climateriskmanagementstatements.

overall Scoring Results HighlightedbelowarethenineinsurersthatearnedthetopLeadingratingbasedonCeres’ analysis oftheinformationineachinsurers’2014Survey.

top RateD (Re) InSuReRS ACE Munich Re Swiss Re Allianz Prudential XL Group The Hartford Sompo Japan Zurich Insurance

Thislistofcompaniesincludestworeinsurers(MunichReandSwissRe);sixP&Cinsurers (ACE,Allianz,TheHartford,SompoJapan,XLGroup,andZurichInsurance)andonelife insurer(PrudentialInsurance.)

CHAPTER2 25 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations CHAPTER 3 Property & Casualty Findings P&Cinsurersareontheveritable‘frontline’ofclimatechangerisks,andthereiscompelling evidencethatthoserisksaregrowing.Risingsealevelsandmorepronouncedextremeweather eventswillmeanincreasinglydamagingstormsurgesandflooding.HurricaneSandycaused anunprecedented14-footstormsurge,eclipsingthe10-footrecordsetin1960, 52 resulting inmorethan$68billionintotallosses(over$29billionininsuredlosses)and210deaths. 53 CoreLogic,aglobalpropertyinformationandanalyticsprovider,identifiedmorethan6.5million U.S.homesatriskofstormsurgedamage,withatotalreconstructionvalueofnearly$1.5trillion inaJuly2014report. 54 Againstthisbackdrop,theP&Csegment’sreactionhasfrequentlybeentolimitcoverages orentirelywithdrawfromcertaincatastrophe-pronemarkets,especiallycoastalregionssuch asLongIsland, 55 Virginia, 56 Delaware 57 andFlorida.Inthelongrun,thesecoverageretreats transfergrowingriskstopublicinstitutionsandlocalpopulations,andreducetheresiliencyof co mmunities,whichmaystruggletopaythecostsofpostdisasterrecovery.Climatechangewill increase theneedforinsurersandregulatorstopromoterisk-basedpricingbasedonescalating dangers.Bydoingso,theycanensurefuturemarketparticipationbytheprivateinsurancesector. overall Results WhiletheP&Csegmenthashigheraveragescoresthantheothertwoinsurancesegments,there issubstantialroomforimprovement.Onlyeightofthe193companies—fourpercent—earnedthe Leadingrating,followedby20percentwiththeDevelopingratingand76percentwiththebottom tworatings.Despitethissector’sdistinctvulnerabilitytoclimate-relatedphysicalimpactsaswell asclimate-relatedlitigation,thevastmajorityofP&Cinsurersarenotaddressingclimaterisks inacomprehensivemanner.(SeeFigure3.1)

52 KevinH.Kelley,“HurricaneSandy:expectedevent,unexpectedconsequences,” Insurance Day ,August29,2014: https://www.insuranceday.com/generic_listing/catastrophes/hurricane-sandy-expected-event-unexpected-consequences.htm . 53 MunichReNatCatSERVICE, Loss Events Worldwide 1980—2013: 10 costliest events ordered by overall losses: https://www.munichre.com/site/touch- naturalhazards/get/documents_E-311190580/mr/assetpool.shared/Documents/5_Touch/_NatCatService/Significant-Natural-Catastrophes/2013/10-cos tliest-events-ordered-by-overall-losses-worldwide.pdf . 54 CoreLogic,“2014CoreLogicStormSurgeAnalysisIdentifiesMoreThan6.5MillionUSHomeswithTotalReconstructionValueofNearly1.5TrillionDollars atRiskofHurricaneStormSurgeDamage,”July24,2014. http://www.corelogic.com/about-us/news/2014-corelogic-storm-surge-analysis.aspx . 55 SenatorCharlesSchumer(D-NY),“Schumer:afterSandy,homeinsurancecompaniesareincreasinglyabandoningLongIslanders—eventhose unaffectedbythestorm—forcingthemintofarhigher-priced,lower-coverageplan;willcallforFEMAtobringseriouspenaltiesagainstcompanies iftheycontinuetoleavemarket,”June24,2013. http://www.schumer.senate.gov/Newsroom/record.cfm?id=344160 . 56 SkipStilesandShannonHulst,“ HomeownersInsuranceChangesinCoastalVirginia” , Wetlands Watch ,2013. http://www.floods.org/ace- files/documentlibrary/committees/Insurance/WetlandsWatch_Insurance-study.pdf . 57 M.PatriciaTitus,“Insurersabandoncoastalmarket,” Coastal Point ,April19,2008. http://bethanybeachnews.com/content/insurers_abandon_coastal_market .

26 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations FIguRe 3.1: pRopeRty & CaSualty InSuReRS oveRall RatIngS

minimal beginning Developing leading 100 90 leading Insurers: • ACE 80 86 s

r • Allianz e

r 70

u • The Hartford Fire & Casualty s n

I • Munich Re

60 f 60 o

• Sompo Japan r 50 e

b • Swiss Re m 40 u • XL Group N 39 30 • Zurich 20 10 8 0 total Companies = 193

3.1 ClImate RISK goveRnanCe TheClimateRiskGovernancethemeinvestigatestheextenttowhichclimateriskisbeing addressedatthetoplevelsoftheorganization.Companieswerescoredonthefollowing fourSurveyquestions: ñ Isclimateriskaddressedattheexecutivelevel? ñ Isclimatechangeexplicitlyconsideredinthecompany’sEnterpriseRiskManagement (ERM)framework? ñ Doestheboardofdirectorshavearoleinmanagingthefirm’sclimaterisk? ñ Hasthecompanyissuedapublicclimatechangepolicystatement? Thefollowingresultsfocusonthefirstthreegovernancequestions.Thefourthquestionis addressedlaterinthechapter.

FIguRe 3.2: pRopeRty & CaSualty InSuReRS ClImate RISK goveRnanCe by RatIng

minimal beginning Developing leading leading Insurers: 100 • ACE Ltd. Group • Hartford Fire • Allianz & Casualty 90 92 • Allstate • Ironshore Indemnity 80

s • Auto Club • Munich Re r e

r 70 Enterprises • NYCM Insurance u s

n • Catlin • Pennsylvania I

60 f National Mutual o • General Security

r 50 e Indemnity • Westfield Insurance b

m 40 47 • Grinnell Mutual u 41 N 30 20

10 13 0 total Companies = 193

Only13of193P&Cinsurers—sevenpercent—earnedaLeadingratingfortheirclimaterisk governanceperformance.Twenty-fourpercent—47of193companies—earnedaDeveloping rating.Astrongmajority,about69percent,donotreporthavingsignificantseniorlevel leadershipresponsibleformanagingclimaterisksinasystematicway.

CHAPTER3 27 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations the Importance of Comprehensive Climate Risk governance Thoseinsurerswithstrong,top-levelleadershipwillbemostabletoaddressclimateriskina comprehensive andsubstantivemanner.Inreviewingsurveyresponses,leadinginsurers notedthefollowingimportantelementsofacomprehensiveclimateriskgovernanceprogram: ñ Board-level Climate Risk Oversight: Insurers’boardsofdirectorsarechargedwithtaking alonger-termviewofcompanystrategyandrisk.Leadinginsurers’boardshaveorganized committeeswithclearmandatesfocusedonevaluatingclimaterisk. ñ CEO and Senior Management Priority: LeadinginsurersnotedthattheirCEOsandsenior managementreceiveregularbriefingsonthelatestclimatescienceandcompanyexposures relatedtoclimatechange.Seniormanagementatthesecompaniesempoweredcommittees ofemployeesand/ormanagementtoinvestigateandprovidereportingandproposalsfor addressingcorporateclimaterisk. ñ Climate Risk Incorporated in ERM: EnterpriseRiskManagement(ERM)frameworks seektoidentify,measure,andactivelymanageallrisksanorganizationfacesacrossits enterprise. 58 Leadinginsurersindicatedthatclimatechangeisaspecificriskincorporated intotheirERMprocesses.

Climate Risk governance leadership examples Inordertoaccuratelyevaluatethewiderangeofrisksconfrontingtheircustomers,boards needaccesstoexpertanalysisandreporting,as Grinnell Mutual (GMRC) indicates: “GMRC does consider climate change as part of our Enterprise Risk Management (ERM) process especially as it relates to changing weather patterns impacting policyholder claims experience. The Risk Committee is responsible for overseeing and monitoring ERM which includes climate change issues. The Risk Committee regularly reports on risks and key risk changes, which includes climate change, to the board of directors.” Inordertocomprehendthefullrangeofrisksposedbyclimatechange,seniormanagement mustberegularlyinformedofhowaninsurer’srisksandopportunitieslandscapechanges overtime,as The Hartford demonstrates: “Alan Kreczko, General Counsel and Executive Vice President chairs The Hartford’s committee on climate change, the “Environment Committee”. In this capacity, Mr. Kreczko briefs the Legal and Public Affairs Committee of the board of directors annually, and a Committee member under his direction briefs the Executive Leadership Team (ELT) twice yearly. (The ELT comprises the company’s 10 most senior company executives, including the CEO, CFO and Mr. Kreczko.)… The committee has been tasked by Senior Management with examining the risks and opportunities presented by climate change, assessing The Hartford’s current approach to climate change, and assisting in the development of climate change-related strategies going forward.” Seniormanagementwillbebestadvisedregardingclimateriskandopportunitiesifitgrants institutionalsupporttoastandingcommitteededicatedtoevaluatingsuchtopics,as Catlin outlinesbelow: “In additional to the individual judgment of our underwriters, Catlin several years ago established an Emerging Risks Committee, which is a institutionalized process for considering the impact of climate change risks, especially weather-related risks, on the company’s business. The committee is chaired by the Group’s Chief Science Officer

58 StandardandPoor’s, Evaluating the Enterprise Risk Management Practices of Insurance Companies ,2005,3, http://www.actuaries.org.uk/system/files/documents/pdf/insurancecriteria.pdf .

CHAPTER3 28 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations and includes underwriting, actuarial and enterprise risk management (ERM) representatives. An emerging risk can be defined as an issue that could be potentially significant but which may not be fully understood in insurance terms and could affect how the company prices its products, reserves for future claims or allocates capital to specific business units.” Enterpriseriskmanagement,asatoolforaggregatingandevaluatingtherisksacrossan organization,isonlyaseffectiveastherisksandopportunitiesitismeasuring.Forariskthat cutsacrosscompanyfunctionsandbusinessunitssuchasclimatechange,itisimperative thatcompaniesallocateresourcestotrackingit,as New York Central Mutual notes: “At this time, we continue to monitor our exposure due to climate change. This is monitored by our ERM committee, chaired by our Chief Risk Officer, who reports to the board of directors. We have a designated point person to coordinate climate change risk, as all areas of the corporation have been tasked with monitoring the risks to our operations related to climate change.”

ᮣ the opportunity WithonlysevenpercentofinsurersearningaLeadingratingregardingtheirClimateRisk Governance programs,and31percentofinsurersearningthetoptworatingscombined, agenerallackof managementattentiontoclimateriskleavesmanyP&Cinsurershighlyexposed tounexpectedandsignificantlosses.Inadditiontoprotectingagainstcurrentandevolvingclimate risks,therearestrongbusinessopportunitiestobeuncoveredsuchasnewclimate-related productlinesandclimate-relatedinvestments. ñ Long-Term Perspective: Regularlymonitoringandaddressingthespecificandgrowing risksthatclimatechangeposestoaninsurer’sbottomlineaidsmanagersinconsidering timeframesbeyondtheone-yearwrittenpolicywindow,as Ironshore Indemnity notes: “Risk Management monitors and reports the aggregation and concentration of policies underwritten in locations that are subject to increased catastrophe risks in location[s] such as the Florida coast. This information is reported internally and to the Underwriting & Risk Committee of the board of directors.” ñ Enhanced Communication: RobustERMframeworksactivelyanddeliberatelyfacilitate theprocessofelevatingrisksupthechainofcommandwithinacompany,as Cincinnati Insurance 59 demonstrates: “Identification and assessment of climate-change related risks are incorporated into our overall risk management program. Comprehensive risk assessments are periodically completed via interviews of dozens of business leaders in the company. Risks lists are compiled and scored by the interviewee group, then quantification and probability scenarios are developed by subject matter experts.”

3.2 ClImate RISK management Statement Allinsurerswerescoredonwhetherthecompanyreportedithadissuedapublicstatementon itsapproachtoclimateriskmanagement.Asdepictedinfigure3.3onthefollowingpage,only 12insurersreportedhavingpublishedrobustclimatepolicystatements.Whileafewinsurers (tenintotal)areintheprocessofdevelopingclimatepolicies,thelargemajority(88percent) havenotyetevenbegunthisprocess. Nonetheless,thereareanumberofinsurerswhoprovided usefulexamplesforotherstoconsider.

59 CincinnatiInsuranceCompanywasnotatopLeadingrankinsureronClimateRiskGovernance,butindicatedanovelmethodforaggregatingrisk assessmentsfromacrosstheenterprise.

CHAPTER3 29 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations FIguRe 3.3: pRopeRty & CaSualty InSuReRS ClImate polICy Statement by RatIng

minimal beginning Developing leading 200 180 leading Insurers: 160 171 • ACE • FM Global s r e

r 140 • Allianz • Hartford Fire u

s & Casualty n • Allstate I

120 f • Munich Re o • AIG

r 100 e • AXIS Insurance • Sompo Japan b

m 80 • Swiss Re u • Commerce N Insurance • Zurich 60 40 20 6 4 0 12 total Companies = 193

the Importance of Climate Risk management Statements Whilemanyinsurersindicatethattheyhavepoliciesgoverningriskmanagementand investmentmanagement,climatechangeposesagrowingthreattobothaspectsofinsurers’ operations.Leadinginsurershavedevelopedandmadepubliclyavailableandcomprehensive climatechangepoliciesthatcatalyzeresponsesacrossallbusinessunits.Theessential componentsofacomprehensiveclimatechangestatement,basedontheleadingexamples providedininsurers’responsestothesurvey,include: ñ Climate Science Confirmation: Basedonthelatestavailablescience,aclearunderstandingof thescientificconsensusregardingclimatechangeandtheroleofhumanactivityincausingit. ñ Climate Risk Underwriting Consideration: Explicitconsiderationofcurrentandfutureclimate changeeffectsandtheirimpactsonthefrequencyandseverityofhazardsthatdeviatefrom historicaltrends,aspartofthecorporateenterpriseriskmanagement(ERM)function. ñ Climate Risk Investment Consideration: Explicitconsiderationofclimateriskand environmental,social,andgovernance(ESG)issuesasacomponentofanalyzingthe company’sinvestmentportfolioacrossinvestmentclasses. ñ Public Climate Engagement: Promotionofandcontributiontopublicpolicyand/oracademic effortsthatcontributetobuildingamoreresilientandsustainableeconomyandsociety. ñ GHG Reduction: Theimplementationofacorporategreenhousegasreductionprogram andrelatedinternalsustainabilityeffortstoreduceandmitigatethecompany’scontribution togreenhousegases. Thesepolicystatementsdescribeacomprehensivecorporateresponsetocurrentand anticipatedglobalclimateriskbyexaminingallaspectsofaninsurer’sbusinesswithin thecontextofawarmingplanet.

CHAPTER3 30 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations public Climate Risk management Statement leadership examples Aleadingexamplefromthetoprankedresponsesisthatofthe American International Group (AIG) : “AIG was the first U.S.-based insurance company to adopt a public statement on the environment and climate change, recognizing the scientific consensus that climate change is a reality and is in large part the result of human activities that have led to increasing concentrations of greenhouse gases in the earth’s atmosphere. Climate change is seen as a serious global environmental problem with risks to the global economy and ecology, and to human health and well being, and AIG supports market- based environmental policies to address the problem.” Allianz (parentcompanyof Fireman’s Fund )offersitsperspectiveontheopportunities, aswellasrisksinherentinachangingclimate: “As an integrated financial services provider, we are well aware that climate change could result in a range of compound risks and opportunities that affect our entire business. As a result, we are committed to supporting the development of a low-carbon economy, and see this not just as a sustainability priority—but also a viable business and investment case. We are adapting internal policies and processes including risk management and investment management, as part of a comprehensive long-term climate change strategy [policy] first adopted in 2005…which also includes reducing our own carbon emissions and environmental impact…developing relevant products and services, leveraging climate change research, transparent communication with our stakeholders, and contributing to related public policy development.” However,manylargeinsurersstilllackapublicclimatepolicy,despitethosesamecompanies takingactiontomitigateclimateriskinimportantareasoftheirbusinesses.

ᮣ the opportunity Giventhatonly12percentofthe193P&Ccompaniesissuedaclimatechangepolicy,there isahugeopportunitytoguideinsurersintheprocessofdraftingandadoptingaformal climatechangepolicy. ñ Build a Longer-Term Perspective: Byintegratinginputfromacrossthecorporationaswell askeystakeholders,insurerscanusetheprocessofdevelopingaclimatechangepolicy asameansofaligningthecompany’slonger-termoutlookwithnear-termconcernsabout riskexposuresandcapitaladequacy. Munich Re Group indicates that it “adopts a multidisciplinary approach to climate change (CC) risks, using and combining the experience/expertise of our scientists, specialist underwriters, lawyers, economists, and actuaries in a multidisciplinary company-wide risk management process. An in-depth understanding of risks is the basis of Munich Re’s business, and CC is closely linked to our core business as it can have a financial impact on nearly all of our lines of business.” ñ Increase Organizational Alignment and Commitment: Aclimatechangepolicydevelopment processshouldengagealllevelsofaninsurer’scorporatehierarchy,therebymobilizing the company’sleadershipandstafftowardacommongoalthatunlocksaddedvalue. The Hartford describes its collaborative approach: “The Environment Committee, which was created in 2007 as part of The Hartford’s public commitments on climate change, is made up of 17 company leaders across the enterprise, including risk management,

CHAPTER3 31 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations service operations, representatives of the company’s three main businesses (Consumer Markets, Commercial Markets and Wealth Management), and our investment company, as well as HR, Marketing and Communications and Government Affairs.” ñ Reputational/Branding Benefits: Aninsurercangarnersignificantreputationalbenefits bybeingproactiveinassessingitsclimate-relatedrisksandopportunities. Allstate notes that, with regard to its climate change response “there is an opportunity for Allstate to build its reputation for its sustainability efforts among consumers and other key stakeholders who are increasingly interested in the environment and the impacts of climate change on our company. This opportunity could enhance customer and consumer consideration thereby potentially increasing Allstate’s customer base.”

3.3 enteRpRISe-WIDe ClImate RISK management TheEnterprise-WideClimateRiskManagementthemefocusesonhowinsurersidentify, assess,andmanagerisksandopportunitiestotheirbusinessesstemmingfromclimate change.Thesesurveyquestionsrangequitebroadly,encompassing: ñ Products & Customers: Doestheinsurerforeseeclimatechangeimpactingconsumer demandforinsuranceproducts;whichbusinesssegments/productsaremostexposedto climaterisk;anddoesthecompanyexaminethegeographicspreadofpropertyexposures inrelationtoexpectedclimatechangeimpacts? ñ Investments: Doestheinsurerconsiderclimaterisks(acrossallassetclasses)when assessinginvestments;doestheinsureruseashadowpriceforcarboninassessing carbon-intensiveheavyindustryinvestments;anddoestheinsurerhaveasystemfor managingcorrelatedrisksbetweenitsunderwritingandinvestments? ñ Liquidity and Capital Management: Doestheinsurerconsiderclimateriskswithregardto liquidityandcapitalneeds,termsandcostsofcatastrophereinsurance,andhowregularly doestheinsurerreassessclimaterisk?

FIguRe 3.4: pRopeRty & CaSualty InSuReRS enteRpRISe-WIDe ClImate RISK management by RatIng

minimal beginning Developing leading leading Insurers: 100 • Allianz • PEMCO Mutual 90 • CSAA • Sompo Japan • First Financial • Swiss Re 80 82 s • Grinnell Mutual • The Hanover r e

r 70

u • Hartford Fire • Tokio Marine s

n & Casualty I • W. R. Berkley

60 f

o • Munich Re 58 • XL Group r 50 e • Nationwide b • Zurich US m 40 u

N 38 30 20 10 15 0 total Companies = 193

Outof193P&Cinsurers,eightpercentearnedtheLeadingrating,withanother20percent earningtheDevelopingrating,leaving72percentwiththelowertworatings.Notably,anumber ofcompaniesscoredwellononeortwoofthequestions,butlaggedonothers.

CHAPTER3 32 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations the Importance of enterprise-Wide Climate Risk management Insurersfaceclimaterisksonboththeunderwriting(liability)andtheinvestment(asset)sides oftheirbalancesheets.Insurerswithleadingpracticesaretrackingclimateriskacrosstheir variousoperationalareasinaholisticmanner.Forexample, ACE demonstratesarobust methodforevaluatingandelevatingriskstoseniormanagementlevelswherewarranted: “Risks are evaluated at least annually at three governance levels, with the company’s senior management actively engaged in each. The company’s ERM board, product boards and credit committees meet as frequently as monthly to evaluate specific risks and risk accumulations in ACE’s business activities and investments, while the board of Directors’ Risk Committee meets regularly with company management.” XL Group describesasystematizedapproachtoassessingemergingclaimsrelatedto climatelitigation: “We currently track XL climate change-related claims as part of our quarterly Emerging Risks reports. Given the potential for climate change litigation, we have also analyzed how our outward reinsurance contracts would respond to any claims where XL would be required to make payment (defense, indemnification, etc.) to a policyholder or ceding company client.” PEMCO Mutual offersanexampleofaninsurerassessingandactinguponarangeofclimate riskstoitsinvestmentportfolio: “Built into our investment strategy is the common sense consideration of the effects of climate change upon certain investment alternatives. Among other steps taken… the company does not generally invest in utilities or coal producers.”

The Sentry 60 outlinesitsviewontherangeofcleanenergyinvestmentsitmakeswithaneye towardinvestinginrenewableenergy: “Climate change issues and the resulting governmental policy impact are creating opportunities in “Green Technology” investments. These investments are a sizeable portion of our Private Equity and Venture Capital portfolios, with investments in wind and solar power generation being the major category.” WithGHG-relatedregulationsonheavyindustryadvancingonmultiplefronts, Hanover Insurance providesanexampleofaninsurerthattakescarbonriskintoaccountwhen consideringitsutilitysectorinvestments: “Climate change and the resultant potential for regulatory pressure on the utility industry continue to be an important factor in our analysis of the utility sector for at least the last 18 months. As an investor in electric and gas utility bonds and stocks, we are concerned about the potential for higher costs from regulatory efforts to combat global warming (i.e. the carbon tax, clean air standards, etc.) and the effects these would have on utility industry profitability. Insurerswithleadingpracticessuchas W.R. Berkley indicatedthattheyhaveaformalprocess toevaluaterealestateinvestmentdecisionswhichtakeclimate-relatedcatastropheriskinto consideration: “When considering real estate purchases, the Investment team considers the exposure to catastrophe at that location. When there is a risk of catastrophe, the ERM team works with the Investment team to assess that risk, and this assessment is taken into consideration when determining whether to proceed with the purchase”

60 Althoughnotatopscoringinsureronthismeasure,TheSentryInsuranceisanexampleofacompanytakingadvantageofcleantechnology investmentopportunities.

CHAPTER3 33 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ᮣ the opportunity With28percentofinsurersearningthetoptworatings,insurershaveamajoropportunity indevelopingstronger,moreintegrated,andcomprehensiveenterprise-wideclimaterisk managementprotocols.Thepotentialbenefitsofsucheffortsaresubstantial. Ariskmanagementprogramthatconsidersclimate-influencedcatastropheriskcorrelations acrossbothunderwritingandinvestmentbusinesslinescanensurethatrisksandopportunities arebalancedandcoordinated.Holisticenterpriseriskmanagementoperationsthattakeclimate riskintoaccountthroughcatastrophemodelingandothermeasurescanmoreaccuratelyprice (subjecttoregulatoryconstraints)mountingextremeweatherrisksduetoclimatechange. Furthermore,withtheongoingmaturationofrenewableenergytechnologies,aswellasthe developmentofnewinvestmentandsecuritizationvehiclesincleanenergy,insurersarepresented withunprecedentedopportunitiestoprofitfrominvestmentsinclimatechangemitigation.

3.4 ClImate Change moDelIng & analytICS Inthiscategoryinsurerswerescoredonthreemeasures: ñ Whetherthecompanyhastakenstepstomodeland/oranalyzeperilsassociatedwith non-stationaryhazardsthatdeviatefromhistoricaltrends. ñ Whetherthecompanyhasusedcatastrophemodelstoperformhypothetical“stresstests” todeterminetheimplicationsofarangeofplausibleclimatechangescenarios. ñ Whetherthecompanyhasconducted,commissioned,orparticipatedinscenario modelingforclimatetrendsbeyondthe1-5yeartimescale. Comparedtootherthemes,theClimateChangeModeling&Analyticsresultsshowamoreeven distribution,withabout26percentofP&CinsurersearningaLeadingrating,42percent ofinsurersearningthesecondandthirdratings,and32percentearningMinimalratings. Therelativelystrongresultsregardingtheuseofmodelingandanalyticsinassessingclimate riskreflectsthebeginningsofastrategictransformationintheuseofthesetechnologies withintheindustry.Facedwithmorefrequentsevereweathereventsandsealevelrise, insurersareincreasinglyconcernedthattheircatastrophemodelingtoolsfullyintegratethe effectsofclimatechange.

FIguRe 3.5: pRopeRty & CaSualty InSuReRS ClImate Change moDelIng & analytICS by RatIng

minimal beginning Developing leading leading Insurers: 70 • ACE • Enumclaw Insurance • Privilege Underwriters • Acuity Mutual Group • Farmers Insurance Reciprocal • Progressive Insurance Gp. 60 63 • Alfa Mutual Insurance Co. • First Financial Insurance • Allianz Insurance • General Security Indemnity • Protective Insurance s

r Companies • Grange Insurance Group • Quincy Mutual

e 50 r • Allied World Assurance • RSUI Indemnity u 50 • Greater New York s

n • Alterra America Insurance Insurance • Sompo Japan Insurance I

f 40

o • American Family • Grinnell Mutual Group • Swiss Re Group

40 40 r

e • Arbella Insurance Group • GuideOne Insurance Group • The Sentry Insurance Gp. b 30 m • Arch Insurance Group • Hartford Fire and Casualty • Tokio Marine Holdings, Inc. u

N • Aspen Insurance • Homesite Insurance Group • United Fire Group 20 • Auto Club Insurance Asso. • IAT Group • Utica National Insurance Gp. • Capital Insurance Group • Ironshore Indemnity Inc. • W. R. Berkley Corporation 10 • Catlin • Liberty Mutual • WBL Group • Church Mutual Insurance • Merchants Mutual Ins. • Westfield Insurance • Cincinnati Financial • Munich Re Group • XL Group 0 total Companies = 193 • CSAA Insurance Group • Nationwide Insurance • Zurich US • EMC Insurance Companies • PEMCO Mutual Insurance

CHAPTER3 34 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations the Importance of Climate Change modeling & analytics Sophisticated,complextoolsdemandahighlevelofoperatorexpertiseandcomprehensionto beusedeffectively.Thevastamountofinformationusedbycatastrophemodels,comprising historicalweatherrecords,insuredpropertydata,andassumptionsregardingfutureclimate conditions,requirethatcompanystaffandteamsoperatingthe‘cat’modelshaveabroad anddeeprangeofexpertise.Addingtothecomplexity,manyinsurersaggregateoutputsfrom differentvendors’modelstoreducetherangeofuncertaintytomanageablelevels. Therearesubstantialbenefitsforinsurersthateffectively quantify risk exposures through theuseofcatmodeling.Ceres’reviewofthesurveyresultsindicatesthatinsurersthatfully integratecatastrophemodelingintotheirriskmanagementprograms,throughboththeir underwritingandinvestmentfunctions,arebestpositionedtobothprotecttheirbusinesses andcapitalizeonopportunitiesinachangingclimate.Keyfeaturesofaclimate-informed catastrophemodelingandanalyticssystem,asindicatedbytheleadinginsurersbelow,are: ñ Multi-Source Data Integration: Insurerswithleadingpracticesacknowledgethelimitations oftheircatastrophemodelingsystemsinprojectingclimate-relatedcatastropheimpacts. Theseinsurersshowedthattheyaremitigatingtheriskofrelyingtooheavilyononemodel’s outputbyblendingtheoutputsofmultiplecatmodelsandintegratingdatafromacademic orothersourcesintotheirmodels. ñ Stress Testing: Insurerswithleadingpracticessubjectspecificlinesofbusinesstostress testsbyutilizingprojectionsofpossiblefutureperilsthataremoreseverethanhistorical experience.Bydoingso,theyhelpensurecapitaladequacyinthecaseofmajorevents. ñ Medium to Long-Term Modeling: Insurerswithleadingpracticesemployprojectionsin theircatmodelsthatallowthemtomakeforecastsbeyondfiveyears.Theselonger-term projectionsallowinsurerstoevaluatethefutureinsurabilityofvariouslocalesorregions inaclimate-changedworldandadapttheirbusinessstrategiesaccordingly.

Climate Risk leadership examples Liberty Mutual’s responseoutlineshowitintegratesinformationfrominternaldatasources, externalscientificresearch,andtheoutputsofmultiplecatastrophesimulators: “Liberty Mutual rigorously utilizes the latest exposure simulation models from AIR, Risk Management Solutions and Eqecat as the foundation for estimating potential natural catastrophe exposures. These models are kept up to date with the latest versions that incorporate the most recent scientific advances in the estimation of the Company’s natural catastrophe exposures. Recognizing that there can be significant uncertainty in catastrophe models for various perils, Liberty Mutual has a Catastrophe R&D team whose purpose is to augment the models with information from external scientific sources and the Company’s historical losses. In this way, the Company seeks to improve the predictive value of catastrophe models and obtain the most accurate estimates of natural catastrophe exposure.” Arbella Insurance Group describesleadingpracticesforstresstesting,whichhelpsinevaluating capitaladequacy,aswellassupportingstrategicplanningandunderwritingdecisions: “The Company utilizes computer models to create a distribution of expected losses from various weather perils. These models are run using both a long term and a medium term view of weather patterns as well as with and without storm surge. The Company utilizes this distribution of estimated losses to perform various stress tests to evaluate

CHAPTER3 35 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations the company’s exposure to more severe losses than experienced using historical experience. We continuously assess the impact of various modeled scenarios in regards to capital adequacy and business continuity. Stress testing is done at various modeled probabilities to assess the amount of surplus at risk at various points across the probability curve. Understanding our Potential Maximum Loss (PML) from these events is inherent in underwriting decisions, strategic planning and capital management.” CSAA showshowitprojectsclimaterisksforwardinitscatastrophemodelingasawayof planningforawarmerfuture. “We utilize catastrophe models of two major third-party modeling vendors to assist in determining our reinsurance program structure, and we purchase to a very conservative return period, in order to appropriately protect our policyholders…While we are not overly exposed to loss from hurricanes, the catastrophe models we employ are, themselves, now utilizing conservative assumptions—a “medium-term” hurricane event set, representing the next five years of expected activity, as opposed to the historical record of activity, and a “warm sea-surface temperature” event set. Such event sets are also often called “near-term”. And, of course, we also write in states prone to non-hurricane wind losses, and must therefore consider trends in those types of losses as well.”

ᮣ the opportunity Overall,47percentofP&CinsurersearnedeitherLeadingorDevelopingratingsinthe ClimateChangeModeling&Analyticscategory.Licensingcatastrophemodelingsoftwareand hiringorcontractingforthetechnicalexpertisetousethesoftwarearesignificantinvestments forsmallerinsurers.Still,suchinvestmentscanyieldimportantdividendsinavoidedand/or mitigatedlosses.Insurerswithleadingpracticesexplainhowtheyhaveachievednumerous businessbenefitsbyintegratingclimateimpactprojectionsintotheircatastrophemodeling, includingforexample: ñ More Accurate Pricing: Insurerswithleadingpracticesareusingclimate-informed catastrophemodelingsoftwaretoensurethattheirpremiumsaccuratelyreflectthe catastropheriskforagivenproperty. 61 Usingclimatechangeforecastscombinedwithdata onpoliciesin-force,insurerscanestimatetheiroverallriskconcentrationandtheneedto purchasereinsurancecoverage. Merchants Mutual offerssuchinsightsinexplainingits newsoftwareprogram: “Through tools provided by our reinsurance partners and others, we manage our risk concentrations and distance to coast. Merchants is also implementing a leading-edge software tool from our reinsurance partners that will aid us in managing and tracking our weather related exposures by ensuring at the point of sale that all costs associated with catastrophe risk are recouped through the policy premium.” ñ Reduced Model Bias: Insurerswithleadingpracticesuseprocessesto“double-check” thecatastrophemodelstheylicense,toensurethattheircatastropheriskmanagement programsarenotoverlydependentonwhatmaybebiasedorincompletedataoutputs. W.R. Berkley describeshowitsteamstesttheaccuracyofthemodels,givingthe companyanuancedviewofthemodels’strengthsandlimitations: “The ERM and Catastrophe teams investigate the possibility of “model miss” within vendor catastrophe models; this includes a comparison of modeled industry losses against revalued historic losses, investigation of individual sub-components within the model, and “stress testing” model frequency and severity assumptions.”

61 Itiswellunderstoodthat,inmanyjurisdictions,regulatoryconstraintsmaylimittheaccuracyofrisk-basedpremiumschargedtopolicyholders.

CHAPTER3 36 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ñ Technical Capacity-Building: Insurersthatsubstantivelyengagewiththeircatastrophe models,particularlyincomprehendingthosemodels’assumptionsrelatedtoclimate changerisk,areactivelycultivatingvaluabletechnicalexpertisewithintheirworkforces. Asthecatmodelingindustryshiftsinthecomingyears,andasachangedclimateismore fullyreflectedinextremeweatherpatterns,havingaskilledemployeebasewillbeamajor assetforinsurers,asdescribedby Westfield Insurance Company : “Tools and methods that are independent of modeled results include the following: analysis of trends in historical catastrophe loss, deterministic scenario analyses, case studies, and quantification of non-modeled perils and exposures. Long-term demographic, sociological, and climate trends are also considered. The knowledge gained through these activities provides valuable insight that is used to help form our strategies related to catastrophe exposure management, capital deployment, reinsurance, coverage, and pricing.”

3.5 StaKeholDeR engagement SurveyquestionsrelatedtoStakeholderEngagementfocusonthedegreetowhichaninsurer seekstoinfluenceaswellaslearnfromkeystakeholders,includingcustomers,shareholders andthepublic,ontheissueofreducingclimaterisk. Thesurveyaskswhetherinsurersoffer productsorincentivestoencouragepolicyholderstoreducetheirclimaterisks.Italsoasks whethertheyaresupportingclimatechangeresearchtohelpincreasesocietalunderstanding ofclimaterisks.

FIguRe 3.6: pRopeRty & CaSualty InSuReRS StaKeholDeR engagement by RatIng

minimal beginning Developing leading 140 leading Insurers: • ACE 120 • AIG

s 116

r • Allianz

e 100 r

u • The Hartford s n I

• Munich Re

f 80 o • Sompo Japan r e b 60 • Swiss Re m u • Travelers N 53 40 • XL Group • Zurich US 20 14 0 10 total Companies = 193

Topscoreswereawardedtoinsurersshowing,inspecificdetail,thattheyhaveengagedwith keyconstituencies,includingpolicyholders,investorsandthepublic,onclimaterisks.With onlyfivepercentofthe193P&CinsurersearningaLeadingrating,andsevenpercentearning aDevelopingrank,thissectorisclearlylagginginclimate-relatedstakeholderengagement.

CHAPTER3 37 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations the Importance of Stakeholder engagement Insurershavemultipleleversattheirdisposaltopromoteclimatemitigationandadaptation.Such loss-reductioneffortsandawareness-raisingpracticesservedualpurposes:tohelpinsurers financiallywithstand climate-relatedcatastrophes,andtocatalyzesocietybroadlytobecome moreresilient.Initiativestohelpbuildstronger,moreresilientcommunitiesandsupportlow- carbonsolutions—especiallycleanenergytechnologies—representsignificantbusinessgrowth opportunitiesforinsurers.Adequate,availableinsuranceisakeycomponentofscalableresiliency andcarbonmitigationinvestments—whetherforindividuals,businessesorpublicentities. ñ Climate-Aware Insurance Products: Genericallyreferredtoas“green”insuranceproducts, insurershaveincreasinglybeendevelopingnewproductsand/orpoliciesthatfacilitate theircustomers’investmentsinsustainability. 62 • Personal Lines: Themostcommonclimate-awareinsuranceproductsare“green replacement”policies,whichofferpolicyholderstheabilitytobuildorrebuild/replace tohigherstandardsofsustainability(suchasEnergyStar ® equipmentorhybrid/electric vehicles)intheevent ofacoveredloss,orofferpremiumdiscountsforthepurchaseof suchitems.UnderwritingspecifictorooftopsolarPVand/orsmallwindpowerinstallations arealsohighlightedbysurveyrespondents. • Business Owners Policies: Insurerswithleadingpracticesareexpandingtheirproduct offeringstobusinesscustomersbyofferingenergyefficientandresilientrebuilding(toLEED standards, forexample),aswellascoverageforrenewableenergygenerationequipment. • Engineered Risks: Afewinsurersdisclosedthattheyareunderwritingindustrial-scale renewableenergyprojects.Giventherapidgrowthofrenewableenergyinstallations inrecentyears,asmallnumberofleadinginsurersaredevelopingtheunderwriting expertisenecessarytomoveintothisspace. • Climate Liability Coverages: Insurerswithleadingpracticesstatedthattheyareaware oftheriskofliabilityclaimsarisingfromclimate-relatedlitigation,andhaveresponded byintroducingnewliabilityproducts,climatechangeliabilitycoverageextensionsfor existingproductsandexclusionsforclientsincertainindustries. ñ Climate Risk Outreach: Insurerscanleveragetheiruniquecomprehensionofclimate riskstoengagebroadersocietythroughdistinctchannelsofinfluence,thusbuilding societalresilienceandreducinginsurers’climateriskexposureinthelong-term. • Research Support: Insurerswithleadingpracticespartnerwithindependentresearch organizationstosupportoriginalresearchonclimatechangerisksandimpacts.Insurers alsoengagewitharangeofindustryassociationstoproducetargetedresearchthat advancesindustryunderstandingofclimate risk. • Policyholder Engagement: Insurerswithleadingpracticesindicatedtheyhavecreated customer-facingwebsiteportals,informationalmaterials,andinsomecases,risk assessmenttoolstoeducatepolicyholdersaboutclimaterisk. Climate Risk leadership examples Allianz’ responsetotheSurveydescribeshowthecompanyclassifiesanddevelopsclimate- awareinsuranceproductsandservicesacrossbusinesslines: “Allianz offers its retail and commercial customers a growing range of green products and services supporting a low-carbon economy, protecting the environment and helping clients prepare for the negative effects of climate change and/or mitigate associated economic risks. By 2013, Allianz Group offered its clients more than 130 such products and services worldwide…”

62 EvanMills,2012.“TheGreeningofInsurance,” Science 338,1424,December14. http://www.sciencemag.org/content/338/6113/1424.summary .

CHAPTER3 38 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations The Hartford discusseshowitisseizingindustrial-scalecleanenergyunderwritingopportunities: “The Hartford recognizes the growing opportunities for insurers to offer products and services that help our commercial and individual policyholders move to renewable energy and reduce their own greenhouse gas emissions. The launch in 2010 of The Hartford’s Renewable Energy Practice to insure the wind, solar and fuel cell industries is recognition of this growing opportunity. In 2011, this unit won the bid to insure the largest private solar panel installation in the Western Hemisphere.” Swiss Re describeshowithasdevotedsignificantresourcestoclimateriskengagementwith stakeholders: “To educate the public and industry alike about the increased risk of natural catastrophes posed by climate change, Swiss Re released its Flood Risk App in August, 2012… available for free on the iTunes App Store. The Flood Risk App gives a general understanding of flood risks and explains how to manage and insure these risks. The App explores different types of flooding and the challenges involved in making floods insurable. It highlights the importance of adapting to climate change and shows how reliable flood information can strengthen flood preparedness.”

ᮣ the opportunity Only12percentofP&CinsurersearnedthetoptworatingsonStakeholderEngagement.Clearly, thepotentialbenefitsfrominsurersincreasingtheiroutreachtostakeholdersthroughclimate- relatedproductofferings,researchsupportandstrongerdisclosureremainlargelyuntapped. ñ Shaping the Agenda: Asanindustrysingularlyexposedtoclimaterisk,P&Cinsurershave auniqueplatformtoadvocateforsolutionstoclimaterisk.Ratherthanbeingreactiveto climateevents,insurerscanencouragepro-activemeasuresbypolicymakersand regulators,as ACE articulatesthroughthisresponse: “[ACE holds] Membership in the Geneva Association (genevaassociation.org), an international insurance think tank representing 90 global insurance organizations, whose Climate Risk and Insurance project has been outspoken on climate change issues. ACE was part of a working group that produced a report on ocean warming and the implications for the insurance industry.” ñ Developing Internal Expertise: Leadinginsurersindicatedthattheirstaffs’engagement withcutting-edgeclimatescienceresearchhelpedthosecompaniesrealizethebenefits ofincreasedemployeeexpertiseonclimate-relatedtopicsthroughthedevelopmentof morerobustcatastrophemodels,as Aspen 63 notes: “Aspen is heavily invested in research initiatives on natural hazards and climate. This includes not only an in-house R&D team established in 2008 but also support for the Risk Prediction Initiative (RPI) in Bermuda and the Institute for Business and Home Safety (IBHS). In-house research includes the consideration of climate change and climate variability in catastrophe modeling, e.g., by developing Aspen’s own medium- term rates to the RMS hurricane model for the Atlantic basin.”

63 Althoughnotatopscoringinsureronthismeasure,AspenInsuranceisanexampleofacompanydirectingsubstantialresourcestowardpublic climatechangeresearchthatitalsobenefitsfrom.

CHAPTER3 39 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 3.6 InteRnal gReenhouSe gaS management Insurancecompaniesarenotmajorgreenhousegas(GHG)emitterscomparedtomanyother sectors,thoughtheindustry’sheavyrelianceondataprocessingdoesresultinalargerGHG footprintthanmightbeexpected.Manyinsurershavetakenproactivestepstoreducetheir environmentalfootprint,oftenasameansofreducingexpenses.GHGreductionstrategies areoftenakeyelementofcorporatesocialresponsibility(CSR)programs.

FIguRe 3.7: pRopeRty & CaSualty InSuReRS ghg managment pRogRamS by RatIng

minimal beginning Developing leading leading Insurers: 100 • ACE • MetLife 90 • AIG • Munich Re 89 • Allianz • Nationwide 80

s • Allstate • Sompo Japan r e

r 70

u • American Family • State Farm s n

I • Assurant • Swiss Re

60 f o

• Commerce • Travelers r 50 e

b 51 • The Hartford • Zurich m 40 u • John Deere Insurance N 30 36 20 10 17 0 total Companies = 193

Insurerswerescoredbasedontheirstatedemissionsassessmentandreductionplans.Full pointswereawardedtocompaniesthatcompletedannualemissionsinventoriesaccording toestablishedreportingstandards,anddescribedtheirreductioneffortsindetail,including specificmetrics.Clearreductiontargetsandtimeframesforachievingthemwerealsoconsidered . NinepercentoftheP&Cinsurersearnedthetoprating,and28percent— 53companies— earnedoneofthetoptworatings,demonstratingthatbarelyone-quarterofP&C insurershave takenevenmoderatestepstotackleGHGemissionreductions.Asignificantmajorityindicated littleornoactioninthisregard. Whilesomeinsurersindicatedthattheyhavetakenactiontoassess,mitigate,andreduce their GHGemissions,comparedtoothercorporateGHGdisclosureprocesses,thequestionsasked intheClimateRiskDisclosureSurveyarenotspecificenoughtogainadetailedunderstanding ofinsurers’efforts.Forexample,Ceres’GainingGroundreportevaluated“whethercompanies hadprogramsandtargetsforreducingGHGemissionsandincreasingrenewableenergy procurement,and,ifso,whetherthoseprogramsareimprovingcarbon intensitytrends (CIT) andthepercentageofrenewableenergysourced.” 64 Incomparison,questionone ofthesurvey askssimply:“Doesthecompanyhaveaplantoassess,reduce ormitigateitsemissionsinitsoperationsororganizations?”

64 CeresandSustainalytics, Gaining Ground: Corporate Progress on the Ceres Roadmap for Sustainability: GHG Emissions and Energy Efficiency; accessible at http://www.ceres.org/roadmap-assessment/progress-report/performance-by-expectation/performance-operations/ghg-emissions-and-energy-efficiency-1 .

CHAPTER3 40 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 3.7 ClImate RISK DISCloSuRe & RepoRtIng ThefinalareascoredwastheoverallqualityandcomprehensivenessoftheClimateRisk DisclosureSurveyresponses,inparticulartheirlevelofdetailonactionsbeingtakenand quantitativedatainsupportofcompanies’assertions.

FIguRe 3.8: pRopeRty & CaSualty InSuReRS ClImate RISK DISCloSuRe & RepoRtIng by RatIng

leading Insurers: minimal beginning Developing leading • ACE Ltd. Group • Grinnell Mutual 70 • Alfa Mutual • Hartford Fire & 65 • Allianz Casualty 60 • Allstate • Ironshore Indemnity • Liberty Mutual s • American Family r

e 50 r 52 • AIG • MMG Insurance u

s • Amica Mutual • Munich Re n

I 46

f 40 • Aspen Insurance • PEMCO Mutual o

r • Catlin Inc. • Privilege Underwriters e b 30 • Church Mutual • Sompo Japan m

u 30 • Cincinnati Financial Insurance N • Swiss Re 20 • CSAA Insurance Gp. • EMC Insurance • W. R. Berkley • Farmers Insurance Corporation 10 • First Financial • Westfield Insurance • General Security • XL Group plc 0 Indemnity • Zurich US total Companies = 193

FifteenpercentoftheP&CinsurersearnedaLeadingratingand34percentearneda Developingrating.Overall,theresultsshowthatasignificantnumberofinsurersprovided adequatedisclosure,althoughtheremaining51percentcoulddofarbetter. Specificexamplesofbestpracticesincludethefollowing:

Detailed Information Companieswithleadingpracticesincludeddetaileddescriptionsoftheirinternalprocesses andpoliciesforresearching,assessingandincorporatingclimateriskdataintotheirunderwriting andinvestmentprocesses. Munich Re offersanexampleofrobustreportingonitsinternal modelforclimateriskmanagement,anexcellenttemplateforotherinsurerstoconsider: “Together with Corporate Underwriting (CU), experts ensure that CC [climate change] considerations are incorporated in our risk assessment/management, business/product development and asset management. Research findings are passed on to CU and Integrated Risk Management (IRM) and used for product design/pricing, accumulation control and adjustments to natural catastrophe models, and are also factored into our risk capital model calculations and risk strategy. Risk information is collated by IRM and incorporated in control, management and operational processes at the relevant units. We provide individual support in the quantification and management of CC risks. A core component in the identification of risks is an IRM approach involving underwriters/client managers to ensure direct access to markets and dialogue with clients, i.e. an early-warning system that ensures that physical and regulatory risks are identified and assessed at an early stage, and Centers of Competence with experts who specialize in risk identification and analysis in specific lines such as liability and geo risks research.”

CHAPTER3 41 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations W.R. Berkley’s responseincludedadetaileddescriptionofthecompany’spoliciesand proceduresformitigatingrisksandmaximizingopportunities.Thecompanyalsodiscussed itsassessmentsofcatastropheriskacrossanumberofperils,includinghurricanes,tornados, floods,droughtsandwildfires.Thispassagebelowregardingitsassessmentoftornadorisk providesimportantinsightonthecompany’sriskmanagementculture. “As noted in section 3, over the period from 1950 onwards the number of tornados is not increasing. In older calendar years there was significant under-reporting of the weakest category of tornado (EF-0); if one considers all other tornado strengths there is no trend in the frequency of these events or in the number falling into each strength category EF-1 to EF-5…When tornado insured losses are normalized for changes in exposures (for example, the number and values of the buildings and contents, often in areas that were previously agricultural land), these too show no increasing trend… The Group models tornado losses in every state within the USA, and has also revalued the tornados reported by the ISO Property Claims Service (PCS) from 1950 onwards to allow for changes in exposure as an additional data source.”

ᮣ the opportunity Toreportontheirmanagementofclimaterisks,insurersmustfirstidentifyandassesstheir climate-relatedthreatsacrossbusinessunits.WhileERMpracticesaredesignedtocapture potentialthreatsfromacrossanentireorganization,climateriskdisclosurefocusesattention onaspecificrisk.Belowareexamplesofbusinessopportunitiesrelatedtoclimaterisk disclosureandreporting: ñ Establishing Goals: InsurersthatpubliclydisclosecorporategoalsregardingGHGreductions andotherclimateriskmanagementefforts challengetheirorganizationsandemployees toimprovetheiroperations andcreatemorevalueforstakeholders.Suchgoalsettingcan helporganizationsremainfocusedtowardscommonobjectivesacrossbusinessunits. ñ Measuring Progress: Thedisclosureprocessinvolvesgatheringinformationfrominternal stakeholdersacrosstheentity,thuscreatingopportunitiesforinsurerstoassess where thecompanyistoday,anditsfuturegoalsinaddressingclimatechange.Organizations thathavedevelopedinternalclimateriskassessmentandreportingproceduresarewell preparedfordisclosureactivities. ñ Communicating with Stakeholders: InconjunctionwithannualsustainabilityandGHG emissionsreporting,comprehensiveclimateriskdisclosureandreportingoffersinsurers afurthervenueforcommunicatingtheircorporatesocialresponsibility(CSR)credentials tothepublic.Furthermore,climateriskdisclosurecanreassurepolicyholders,investors andregulatorsthatinsurersaretakingthebusinessrisksofclimatechangeseriously. AIG providesanexampleofriskdisclosuretostakeholders: “Risks driven by changes in other climate-related developments may include 1) reputational risk (i.e. potential impacts associated with negative perceptions experienced by the public as well as suppliers and customers around AIG’s carbon performance), and 2) societal change or changing consumer behavior, (i.e. climate change induced changes in customer preferences for products and services). At this time, AIG does not consider these risks to have a substantive impact on revenues, expenditures or business operations, but they are recognized as important drivers that may shape future considerations and strategies.”

CHAPTER3 42 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 3.8 yeaR-oveR-yeaR ClImate RISK management Statement CompaRISon Incomparingthisyear’sresponsestotheprioryear,wefocusedonlyontheobjective question ofwhetheraP&Cinsurerhasapublicclimateriskmanagementstatementornot. 65 Welimited thecomparisontocompanieswithover$300millionindirectpremiumsin2012. Thecharttotheleftindicatesvirtuallynochangeintheproportionof FIguRe 3.9: pRopeRty & CaSualty InSuReRS WIth a ClImate polICy Statement ($300m+ In DWp) companieswithapublicclimateriskmanagementstatementin place:17percentin2012comparedto16percentin2011.Despite 20% a20percentincreaseinthenumberofcompaniesanalyzed,there 18% hasbeenvirtuallynochangeintheresults. 16% TheresultsmakeclearthatthevastmajorityofP&Cinsurers s r 14% havenoclimatechangepolicyinplace,nordotheyindicateplans e r u

s 12% todoso.Companies’willingnesstoimplementstrongclimaterisk n I

o 10% managementstatements—ornot—willbeakeymetricinmeasuring

t n

e 8% 17% theindustry’soverallengagementonclimaterisks.

c 16% r e

P 6% 4% 2% 0% 2011 2012 (16/102 Companies) (19/126 Companies)

65 SeeSection3.2forfurtherdiscussionofthisyear’sclimateriskmanagementstatementresults.

CHAPTER3 43 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations CHAPTER 4 Life & Annuities Insurers Survey Findings

4.1 Context anD oveRall SCoReS Life&AnnuityinsurersfaceadifferentsetofrisksthandoP&Ccompanies.However,a changingclimatewillstillhavemajorimplicationsforthisindustrysegment.L&Ainsurers mustconfrontclimatechangerisksintheirinvestmentstrategiesandinsuranceproducts, although,basedonthesurveyresponses,veryfewaredoingsorightnow.

L&Ainsurershavetrillionsofdollarsininvestmentsthatwillbeaffectedbyclimatechange. 66 ManagingL&AinvestmentportfolioclimaterisksisespeciallyimportantgiventhatL&Ainsurers manage65percentoftheU.S.insuranceindustry’stotalcashandinvestedassets,asof year-end2012.P&Cinsurers,ontheotherhand,held30percent,mostoftheminfairly short-datedinstruments. 67 Climatechangeisexpectedtoimpactvirtuallyeverysectoroftheeconomy,whetherthrough supplychaindisruptions,operationalimpactsorcommoditypricevolatility.Ifinsurersdonot managetheirinvestmentswiththisrealityinmind,theyriskjeopardizingtheirreturnsand theirlong-termcapacitytomeettheirliabilities.L&Acompaniesalsohaveextensiverealestate holdingsandmortgage-backedsecuritiesportfolios,whichcoulddecreaseinmarketvalueor becomedamaged/destroyedbyincreasingextremeweatherevents. 68 BecauseL&Ainsurershold long-termassetstofundtheirlong-termcontractualobligationstopaytheirpolicyholders,the implicationsofclimatechangeoverthedurationofthoseinvestmentsisofparticularrelevance. L&Ainsurersshouldalsobepayingattentiontohowglobalwarmingwillimpactmortalityrisks. Climatechangeisexpectedtoimpacthumanhealthinvariousways.TheU.S.isalready seeingamarkedincreaseinextremesummerheat 69 andtheU.S.CentersforDiseaseControl ispredictingheat-relateddeathrateswillincreaseasmuchasseven-foldbymid-centuryif currentGHGemissionsarenotreduced. 70 TherecentNationalClimateAssessmentpredicted thatfutureclimatechangeimpactssuchasincreasedextremeweatherevents,wildfires,and poorairqualitycouldalsoincreasemortalityrates. 71 Furthermore,threatstohumanhealth arealsopredictedfromincreasedincidencesofvector-bornediseasessuchasLymetick disease,denguefeverandWestNilevirus. 72

66 InsuranceInformationInstitute, Investments , http://www.iii.org/facts_statistics/investments.html . 67 NAIC&TheCenterforInsurancePolicyandResearch, Capital Markets Special Report: Year-end 2013 Insurance Industry Investment Portfolio Asset Mixes ,May6,2014, http://www.naic.org/capital_markets_archive/140506.htm . 68 InsuranceInformationInstitute, Investments , http://www.iii.org/facts_statistics/investments.html . 69 USGlobalChangeResearchProgram, Human Health , http://nca2014.globalchange.gov/report/sectors/human-health . 70 CentersforDiseaseControlandPrevention, Heat Waves ,December14,2009, http://www.cdc.gov/climateandhealth/effects/heat.htm . 71 USGlobalChangeResearchProgram, Climate Change Impacts in the United States: Third National Climate Assessment ,9, http://www.globalchange.gov/ncadac . 72 Ibid.

44 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ThischapterwillexamineL&Ainsurers’performanceacrossarangeofmetrics,withaparticular focusonclimateriskgovernanceandclimaterisksininvestmentportfolios.Duetothefactthat theSurveyisnotspecificallytailoredtotheuniquecharacteristicsofthelifeinsurancesector, 73 aswellasL&Ainsurers’generallypoorperformance,thischapterwillnotprovideasmuch detailastheP&Cportionofthereport. Overall,L&Ainsurersreportlittleornoactiontoreducetheirclimaterisks,nordotheyshowa strong understandingofthesethreats.Giventhesurvey’sprimaryfocusonP&Cfirms,weadjusted thescoringframeworkinevaluatingL&Aresponses.However,evenwiththesemodifications, L&AinsurersperformedmuchmorepoorlythanP&Cfirms.Onlyoneofthe92L&Acompanies earnedaLeadingrating,while79percentofL&AcompaniesearnedthebottomMinimalrating.

FIguRe 4.1: lIFe & annuIty InSuReRS oveRall RatIngS

minimal beginning Developing leading 80

70 73 s

r 60 e r u s

n 50 I leading Insurer:

f o

r 40 • Prudential e b m

u 30 N

10 13 1 0 5 total Companies = 92

MostL&Ainsurersindicatedthattheydonotbelievetheyfacesignificantrisksfromclimate change.Some,suchas Gerber Life ,acknowledgethatP&Ccompaniesfacematerialrisksfrom climatechange,butbelievethatasalifeinsurancecompanytheywillnotfacesimilarrisks. “Gerber Life believes that climate change risk is significantly more relevant for property/casualty insurers than life insurers.” WhiletheL&AsectorlagssignificantlybehindtheP&Csectorinidentifyingandrespondingto climaterisks,therearesomeinsurerswhoaretakingconcrete,positiveactionsinimportantareas.

73 SeeChapter6,Recommendations,formoreinformationonthechallengeswiththesurvey.

CHAPTER4 45 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 4.2 ClImate RISK goveRnanCe Inresponsetoquestionsaboutclimateriskgovernancepractices,twoleading companies outlinedtheirgovernancesystemsforidentifying,monitoringandactingonclimaterisksatthe boardandseniormanagementlevels.VeryfewL&Ainsurersindicatedhavingsuchsystemsin place.Nearly80percentofallL&AcompaniesearnedthelowestMinimalrating.

FIguRe 4.2: lIFe & annuIty InSuReRS ClImate RISK goveRnanCe by RatIng

minimal beginning Developing leading 80

70 72 s

r 60

e leading Insurers: r u

s • Prudential n 50 I

f • Sun Life o

r 40 e b m

u 30 N

10 12 6 2 0 total Companies = 92

Prudential 74 standsoutformakingenvironmentandsustainabilityissuesaboard-level responsibility.In2012,theGovernanceandBusinessEthicsCommitteeofPrudential’sboard ofdirectorsexpandeditschartertoincludethefollowing.“CandidatesforPrudential’sboardwill beassessedontheirexperienceandqualifications relatedtoenvironmentandsustainable businesspractices.”PrudentialalsohasanEnvironmentalTaskForcetomonitorclimate changerelatedissues.ThetaskforceisledbytheVicePresidentofEnvironmentand SustainabilityandishousedintheofficeoftheChiefGovernanceOfficer. Initssurveyresponse Prudential outlinesitsclimateriskmanagementprocess,highlighting itsintegrationwiththecompany’soverallriskmanagementpractices,andtheuseofclimate changeriskmodels tobetterunderstandpotentialimpacts. “Within each individual business, and as part of its standard risk management practice, Prudential examines the potential for climate change-related risks and assesses the degree that they could affect the businesses. There are also risk management programs, like Prudential’s Business Continuation planning, which include a Health Risk and Pandemic Planning component. They have looked at enterprise-wide risks resulting from climate change risk models such as the impact of natural disasters or the growth of contagious illnesses beyond the previous areas of infection.”

74 Intheinterestsoftransparency,pleasenotethatPrudentialFinancial,Inc.isamemberoftheCeresCompanyNetwork,althoughthisfactwasnot takenintoaccountinevaluatingthecompany’ssurveyresponse.MoreinformationontheCompanyNetworkcanbefoundat http://www.ceres.org/company-network .

CHAPTER4 46 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 4.3 ClImate RISK anD InveStmentS Insurerswereaskedabouttheirinvestmentmanagementpractices,andiftheyhaveconsidered climateimpactsontheirportfolios.AsshowninFigure4.3,mostL&Acompaniesdidnot providesubstantiveinformationintheirsurveyresponses.OnlyfourpercentofL&Acompanies earnedthetoptworatings,andonlyoneinsurerearnedthetoprating.However,ahandfulof insurersissuedstrongcommentary.

FIguRe 4.3: lIFe & annuIty InSuReRS InveStment management by RatIng

minimal beginning Developing leading 80 78 70 s

r 60 e r u s

n 50

I leading Insurer:

f o

• Prudential r 40 e b m

u 30 N

10 10 3 1 0 total Companies = 92

Someinsurershighlightedconcernsabouthigh-emittingsectorsintheirinvestmentstrategies. Boston Mutual notedanimportantpolicyinplacetoreducecarbonrisk: “We account for climate change in our risk management by adhering to investment guidelines that would not allow us to invest a significant % of the book value of our assets in any industry that has a large carbon footprint.” Lincoln National notedsimilarconcernsregardingitsrealestateportfolios: “All real estate related investments are screened with respect to climate change factors. These risks may come in many forms including operational, market, liability, policy and regulatory risks” Anotherwayinsurersaremanagingtheserisksisbypartneringwithbroaderclimate-focused investorinitiativessuchastheInvestorNetworkonClimateRisk(INCR)andtheUnited Nations-sponsoredPrinciplesofResponsibleInvestment(PRI).Insurerscanusethese resourcestoaccessbestpracticesbyotherinstitutionalinvestorsonclimate-relatedinvesting. “In an ongoing effort to ensure Prudential is current on best practices, Prudential is a participating member of the Investor Network on Climate Risk and has worked with that organization to benchmark its investment risk management processes for all asset classes.” Asmallnumberofinsurershavebegunidentifyingclimate-relatedinvestmentopportunities, includingrenewableenergyandenergyefficiency.Amongthoseis Sun Life : “We believe that climate change regulation generally will create investment opportunities for us in energy efficiency and renewable energy… Sun Life is continuing to enhance its expertise in financing clean and renewable energy given the potential for growth and investment opportunities in this sector.”

CHAPTER4 47 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations CHAPTER 5 Health Insurers Survey Findings

5.1 Context anD oveRall SCoReS Despitefacingsignificantbusinessrisksfromclimatechange,thesurveyresponsesindicate thatmosthealthinsurersarenotprepared.Anumberofrecentresearchreportshave suggestedthathealthinsurersshouldconsiderclimate-relatedrisksfarmorecomprehensively . “Climate change will, absent AmongthoseistheIntergovernmentalPanelonClimateChange(IPCC)report,issuedin other changes, amplify some March2014,thatwarnsofimpairedhumanhealthduetocatastrophicstorm-relatedimpacts, of the existing health threats temperatureextremes,decreasedairquality,increasedallergenicpollenproduction,and the nation now faces. increasedwaterborneandvector-bornediseases. 75 Certain people and communities are especially ReportssuchastheNationalClimateAssessmentreinforcehowhealthinsurersneedtotake vulnerable, including stepstoprotectpolicyholdersfromtheworstimpactsofclimatechange,whilealsoprotecting children, the elderly, the theirbottomlines.Itisalsoimportantforhealthinsurerstoaligntheircommitmenttohuman sick, the poor, and some healthwiththeirinvestmentportfolios.Aclimate-awarehealthinsurercould,forexample, communities of color… reviewitsinvestmentportfolioandpoliciestoensurethatitsholdingsinenergy-intensiveor Public health actions, extractiveindustriesarenotcontributingtotheextremeweatherandairpollutionthathave 77 especially preparedness beenidentifiedasmajordriversofchronicdiseasesandincreasedmortalityrisks. and prevention, can do Healthinsurersthattakeaproactiveapproachtoclimate-relatedhealthissuescouldserveas much to protect people effectiveadvocatesforstrongclimatepoliciesintheirinteractionswithpolicymakers.AMITstudy from some of the impacts highlightedhowhealthsavingsthataccruefromenactingpoliciestoreducecarbonemissions of climate change. Early could,insomecases,outweighthecostsofimplementingthosepoliciesbyoveronethousand action provides the largest percent. 78 Thosesavingscouldbelargelycapturedbyhealthinsurersintheformofreduced health benefits.” 76 healthinsurancecosts.Healthinsurers’financialinterestsinmitigatingthethreatofclimate Third National Climate changeisclear,frombothanunderwritingandinvestmentperspective.However,thesurvey Assessment (NCA) results showthatfew,ifany,healthinsurersareapproachingclimateriskinsuchaholisticmanner. Thissectionexamineshealthinsurers’responsesacrossarangeofthemes,includinguseful examplesofclimateriskmitigation.However,becausethesurveydoesnotaccountforthe uniqueclimaterisksfacedbyhealthinsurers, 79 combinedwiththeinsurers’generallypoor performance,thissectionisnotasdetailedastheP&Cchapter.

75 IntergovernmentalPanelonClimateChange(IPCC). IPCC Fifth Assessment Report: Climate Change 2014 ,“Observedimpacts,vulnerabilities,and trends,”26.6.1,2014,26-28, http://ipcc-wg2.gov/AR5/images/uploads/WGIIAR5-Chap26_FGDall.pdf 76 USGlobalChangeResearchProgram, Climate Change Impacts in the United States: Third National Climate Assessment ,9,221, http://www.globalchange.gov/ncadac . 77 UmairIrfan,“AirPollutionandExtremeWeatherCombinetoKill,” Scientific American ,September3,2014. http://www.scientificamerican.com/article/air-pollution-and-extreme-weather-combine-to-kill /. 78 T.M.Thompson,S.Rausch,R.K.Saari,andN.E.Selin.“ASystemsApproachtoEvaluatingtheAirQualityCo-BenefitsofU.S.CarbonPolicies.” Nature Climate Change , http://www.nature.com/nclimate/journal/v4/n10/full/nclimate2342.html . 79 SeeChapter6,KeyRecommendationsforInsuranceRegulators,formoreinformationonthechallengeswiththesurvey.

48 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations FIguRe 5.1: health InSuReRS oveRall RatIngS AsFigure5.1shows,participatinghealthinsurersdidnot scorewelloverall—noneofthe companiesearnedthetop minimal beginning Developing leading rating,and89percentofthe45companiesearnedthe 50 bottomrating.Nonetheless,thereweresomeareasof 45 relativeinsurerstrength,asthereporthighlightsbelow. 40

s 40 r e

r 35 u s n I

30 f o

r 25 e b

m 20 u N 15 10 5 4 1 0 0 total Companies = 45

FIguRe 5.2: health InSuReRS ClImate RISK goveRnanCe by RatIng 5.2 ClImate RISK goveRnanCe TheClimateRiskGovernancethemeassessesinsurer minimal beginning Developing leading 50 programsandpoliciesforevaluatingandelevatingclimate 45 riskattheseniormanagementandboardlevels.Health insurersfaredquitepoorlyonthistopic,withnoinsurers 40 42 s r earningthetoprating,oneinsurerearningthesecond e

r 35 u

s rating,and42outof45insurers—93percent—earning n I

30 f thebottomrating.(SeeFigure5.2)Noneoftheinsurers o

r 25 e

b hadacomprehensiveresponseonclimateriskgovernance.

m 20 u Noneindicatedaformalizedprocessforidentifying, N 15 evaluatingandintegratingnewclimatesciencedatathat 10 couldinformtheirclimateriskassessments. 5 2 1 0 0 total Companies = 45

CHAPTER5 49 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 5.3 ClImate RISK anD InveStmentS Generally,healthinsurersdonotunderstandhowclimaterisksmayimpacttheirinvestment portfolios.Onenotableexceptionisthe Torchmark Group ,whichearnedthetopratingforits considerationofclimateriskininvestmentmanagement: “In response to the potential for major catastrophe losses, the company has not purchased investments such as Florida Windstorm bonds, Oil Casualty bonds, etc. The company continuously monitors conditions in all sectors that are, or could be, impacted by future climate developments. Underwriting for industries such as coal generation electric utilities has materially changed in the recent past. A significant amount of extra time is now required for these types of underwritings in order to fully analyze the impact on an investment resulting from compliance with existing and potential new climate rules, regulations and laws.” Bycombiningarealisticassessmentoflikelyfuturecatastrophelossesthatcouldaffectasset prices,aswellastheshiftingregulatoryenvironmentsurroundingcarbonintensiveindustries, Torchmarkisperformingadequateinvestmentduediligenceonbehalfofitsshareholders.

5.4 SuppoRtIng ReSeaRCh anD publIC aWaReneSS AsFigure5.3portrays,healthinsurersscoredpoorlyontheirclimateriskoutreachto policyholdersandthepublic,aswellastheirsupportofoutsideresearchregardingclimatechange.

FIguRe 5.3: health InSuReRS Indeed,withnoinsurersearningthetoprating,89percent StaKeholDeR engagement by RatIng earningthefourthrating,andanotherninepercentearning thethirdrating,healthinsurersappeartolackclimaterisk minimal beginning Developing leading engagementwithkeystakeholdersandthepublicatlarge. 45 Kaiser Foundation Group wasastrongexception: 40 40 35 “KP has supported improved research and risk analysis on the s r

e impact of climate change through the KP Research Program r

u 30 s

n on Genes, Environment, and Health (RPGEH), which was I

o 25

launched in 2005… The databank created through the r e

b 20 RPGEH will enable KP investigators and collaborating m u

N 15 scientists to conduct research to understand genetic and environmental influences—including weather and climate 10 influences—on disease susceptibility, the course of disease, 5 and response to treatment; as well as to translate these 2 0 0 3 findings into improvements in medical care and public health.” total Companies = 45

Kaiser’sRPGEHprogramisanexampleofhowinsurerscanleveragepolicyholderdatato advanceresearcharoundhowenvironmentalfactorsandclimatechangeaffectpublichealth. Withaccesstolargesetsofdetailedclaimsdata,healthinsurersareuniquelypositionedto advanceresearcharoundclimatechangeimpactsonpublichealthinpartnershipwithacademics orotheroutsideresearchers.Suchresearchcouldaidhealthinsurerstoeffectivelyprice climaterisksintheirunderwriting,andinengagingwithpolicyholdersaroundhowtomitigate thehealthrisksfromawarmerfutureclimate.Thisresearchcouldinturnaidinsurersand healthprovidersinbetterunderstandingeffectiveclimate-influenceddiseasepreventionand treatmentmethods,thusbolsteringinsurers’bottomlines.

CHAPTER5 50 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations CHAPTER 6 Recommendations Basedonouranalysisof1,064insurerSurveys,whichCeresgroupedinto330uniquecompany levelresponses,thefollowingrepresentourrecommendationsforhowtheinsuranceindustry andregulatorscouldbetterrespondtotheprofoundandwide-ranging climaterisksthesector isfacing.Therearefiveseparatesectionsbelow,withrecommendations forallinsurers,specific recommendationsforeachinsurancesegment,andrecommendationsforinsuranceregulators.

6.1 ReCommenDatIonS FoR all u.S. InSuReRS ñ Implement Climate Risk Oversight at the Board and C-Suite Levels Addressingthelong-termandfar-reachingrisksandopportunitiesofclimatechangerequires aconcertedeffortbyinsurancecompanyleadership,particularlyattheseniorexecutiveand boardlevels.Insurancecompanyleadershipwillneedtoassessandaligncompanypolicies withtheescalatingrisksthatawarmingclimateposes.Acomprehensiveapproachshould includeintegratingclimateriskassessmentandmanagementintoallareasofcompany operations,andholdingseniormanagementaccountableforachievementofthosegoals. Forward-lookinginsuranceleadersshouldempowertheirteamstoaddressclimaterisks and opportunitiesacrosstheinsurervaluechainonafrequentandongoingbasis.Additionally, cross-functionalclimate-focusedcommittees,comprisedofdiversestafffromallbusiness units,shouldbechargedwithprovidingtimelyclimateriskinformationandrecommendations toseniormanagementandtheirboardssothateffectivecompanyresponsesmay bedeveloped. ñ Issue a Comprehensive and Public Corporate Policy on Climate Risk Asriskcarriers,riskmanagersandmajorinvestors,everyinsurershoulddevelopandissue apublicclimateriskmanagementpolicyforthebenefitoftheirshareholders,policyholders andemployees.Suchstatementsshould,ataminimum,articulatethecompany’s understandingofthelatestclimatescience,GHGreductiongoals,considerationofclimate riskinunderwritingandinvestmentmanagement,andpublicengagementonclimateissues throughpolicyandacademicavenues.Bymakingpublicstatementsregardingclimate change,insurerscancreateplatformsfordeeperandmoremeaningfulengagement,both internallyandwithkeyexternalstakeholders. ñ Integrate Climate Risk into ERM Frameworks Climate-relatedphysicalimpactsandtheexpandinguseofcarbonregulationsaffectthe entireinsurancecompanyvaluechain:productsandservices,pricing, underwriting,risk management,accountmanagement,claimshandlingandinvestmentmanagement.Insurers needtoaccuratelyaccountforclimaterisksintheirERMassessmentmethodologies. IntegratingclimatechangeasakeyongoingriskwithincompanyERMframeworkswillhelp insurerscatalyzeeffectiveresponsesacrosstheenterprise.Clearly,‘businessasusual’ approachesarenolongersufficientgivenacceleratingclimaterisks.

51 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations ñ Deepen Understanding of Climate Change Scenarios and Impacts Allinsurersshouldseektounderstand,asamatterofprudentbusinesspractice,future risksandopportunitiesthatclimatechange(includingevolvingregulatoryframeworksto reducecarbonemissions)presentstotheirbusinesses.Apartfromcatastrophemodeling, whichhasremainedprimarilyaproperty/casualtyriskmanagementtool,theproliferation oflarge-scaleclimatescenarioprojectionsoftware,combinedwithinsurerunderwriting data,willaidindevelopinglossscenariosthatdirectlyinfluenceinsurerproductofferings andpricing.Allinsurers,includinglife&annuityandhealthinsurers,shouldseekout suchmodelingproducts,andwhennoneareavailable,workwithleadingclimateand publichealthexpertstodevelopappropriatetoolsforriskmanagementpurposes. ñ Engage with Key Stakeholders on Climate Risk Insurersthathaveaddressedtherecommendationsaboveshouldbesharingtheir perspectiveswithkeystakeholders:policyholders,regulators,investors,brokers/agents andpolicymakers.Sucheffortsshouldincludeadvocatingforclimateresearchand investmentsinresilientpublicinfrastructure,educatingpolicyholdersonhowtheycan mitigateclimaterisksintheirhomesandbusinesses,andpromotingclimate-aware insuranceproducts,whethergreenreplacementpoliciesorpoliciesthatinsureclean energyprojects,amongothers.Insurersshouldalsoengagewithbrokersandagentsthat selltheirproducts,educatingthemonthebasicsofclimatescienceandtheirclimaterisk managementapproaches,aswellasinformingthemofclimate-awareproductsand incentivestheyareofferingtosellthem.Finally,insurersshouldworkwithregulatorsto findanequitableandtransparentmethodforintegratingclimatechange-informedpricing modelsandunderwriting. ñ Provide Comprehensive Climate Risk Disclosure to Regulators Thisreport’sscoringframeworkisdependentonthequalityofinsurers’climatedisclosures. Insurersthatprovidedetailedinsightsintotheirclimateriskmanagementpracticesprovided moreopportunityforevaluatorstoaccuratelyassesstheirperformance.Whilesomeinsurers providemoredetaileddisclosurereportsthroughCDP(formerlytheCarbonDisclosure Project)orintheirowncorporatesocialresponsibilityreporting,mostarestillsubmitting incompleteclimateriskdisclosurestoregulators.Intheinterestsoftransparencyand supportingevaluationsoftheindustry’soverallresponsestotheirclimaterisk,insurers shouldmakeeveryefforttoprovidecomprehensiveinformationinregulatoryfilings. ñ Participate in Joint Industry Initiatives on Climate Risk Insurersseekingtotakefurtheractiontomitigateclimateriskshavewiderangingresources availabletothem.InMay2014,66globalre/insurers(includingU.S.-basedinsurersAIG, BerkshireHathaway,andPrudential)signedtheGenevaAssociation’s Climate Risk Statement ,80 acallforstrongeractions,inconcertwithpolicymakers,onglobalclimate risks.Insurerscanjoinanynumberofclimate-focusedgroups,including Ceres’Investor NetworkonClimateRisk(INCR) ,the UnitedNationsEnvironmentProgramFinance Initiative’sPrinciplesforSustainableInsurance(UNEPFIPSI) , ClimateWise facilitatedby the UniversityofCambridgeInstituteforSustainabilityLeadership ,orarangeofother domesticandinternationalgroups.

80 TheGenevaAssociationClimateRiskStatementpressrelease,includingthecompletelistofsigners,isavailableatthefollowinglink: https://www.genevaassociation.org/media/878689/pr14-06-climate-risk-statement.pdf .

CHAPTER6 52 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 6.2 Key ReCommenDatIonS FoR pRopeRty & CaSualty InSuReRS ñ Integrate Climate Change Considerations Into Catastrophe Models Astheend-usersofcatastrophemodelsoftware,P&Cinsurersshouldensurethatthelatest climatescienceandprojectedclimateimpactsarebeingtakenintoaccountandmodeled appropriatelybytheirvendors.Accuratelycommunicatingtherisksassociatedwithclimate changethroughpricingandunderwritingisessential,andaccuratecatastrophemodeling iscrucialinthisregard. ñ Consider Correlated Climate Risks in Investments MostP&Cinsurersdidnotindicatethattheytakecorrelatedrisksbetweentheirunderwriting andinvestmentsintoaccountinaformalmanner,particularlyinconsideringtheimpacts ofclimatechangeonbothsidesofthebalancesheet.Whilesomeinsurersreportedthat theyhavelimitedoreliminatedcoverageincertaingeographicregions,especiallycoastal regions,mostinsurersdidnotindicateconsiderationofclimate-relatedassetvalueerosion intheirevaluationofrealestateandmunicipalbondinvestments.Overtime,thesecould introduce materialsolvencyriskstoinsurersintheeventofamajorcatastrophethatdrives higherlossesandreducesinvestmentreturnsinmultiplegeographicregions.

6.3 Key ReCommenDatIonS FoR health InSuReRS ñ Assess the Likely Future Health Impacts of Climate Change Mosthealthinsurersshowedalackofunderstandingofthevariouswaysclimatechange couldimpacttheirbusinesses,andevenmoredisturbing,frequentlydisregardedthe materialityofclimaterisktothehealthoftheirmembers.Insurerswillbetterprotecttheir policyholdersaswellastheirinvestorsbycontinuouslyassessingandintegratingthelatest researchfindingsregarding climate-relatedhealthimpacts. ñ Communicate Climate-Related Health Impacts Externally Justastheinsuranceindustryadvocatedforwarningsontheuseoftobaccoproducts, insurers willbenefitthemselvesandsocietyatlargebyeducatingtheircustomersonthe health impactsofclimatechange,fromfoodsystemimpactstomoreextremeweatherevents such asprolongedheatwaves.Byplayingaleadingroleinhelpingsocietyunderstandthatclimate changehasserioushealthimplications,theindustrywillenableindividualsandpolicymakers tobetterrecognizewhatisatstake.

6.4 Key ReCommenDatIonS FoR lIFe & annuIty InSuReRS ñ Evaluate Climate Risks and Opportunities in Investment Portfolios Asmajorinstitutionalinvestorswithtrillionsofdollarsundermanagement,L&Ainsurersare significantlyexposedtoclimaterisks(bothrelatedtoclimaticimpactsandcarbonrisks)intheir investments,andassuchoughttodevelopaprocessforassessingportfoliorisks.Thereisa growingbodyofresearchoncarbonassetrisks, 81 i.e.theriskembeddedinfossilfuel- based investmentsduetoescalatingcarbonregulationsandprojecteddropsinglobalfossil fuel demandworldwide.L&Ainsurerswillneedtounderstandandaccountfortheseexposures in assessingtheirinvestmentportfolios.Ontheopportunityside,asthegreenbondsmarket rapidlymaturesandexpands,thisassetclassoffersL&Ainsurersagreatoptiontodiversify theirportfoliosbymakingclimatefriendlyinvestments.

81 CarbonTrackerInitiative. Unburnable Carbon 2013: Wasted capital and stranded assets , http://www.carbontracker.org/site/wastedcapital

CHAPTER6 53 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations 6.5 Key ReCommenDatIonS FoR RegulatoRS ñ Require Climate Risk Disclosure In All States Insuranceregulatorsinfivestatesrequiredparticipationinthe2014ClimateRiskDisclosure Survey,withthesurveyresultscoveringabout87percentofthedomesticinsurancemarket by directpremiumswritten.Ultimatelyallstateinsuranceregulatorsshouldrequireinsurers tofileSurveyresponsesinordertogainacompleteassessmentofeachinsurer’sclimate riskstrategies.RegulatorsshouldalsousethedatagainedfromtheSurveyresponsesto morefullyengagewithinsurersregardingtheirclimateriskmanagementstrategies. ñ Release an Improved Climate Risk Disclosure Survey WhiletheSurveyisausefuldocumentforelicitinginsurerresponses,itcouldnonetheless beimprovedintermsofitsclarity,comprehensivenessandfairness.Forexample, thecurrentSurveydoesnottakeintoaccounttheuniqueclimaterisksandopportunities fornon-P&Cinsurers,andthequestionsthemselvesareorientedmostlytowardsP&C concerns.MorenuancedSurveyquestionsorientedtowardsL&Aandhealthinsurerscould helpimprovetheindustry’soverallthinkingandresponsestowiderangingclimaterisks andopportunities. ñ Advocate for Quantitative Evaluation of Insurers’ Climate Risk Management Regulatorsshouldworkmorecloselywithratingsagencies,especiallyinsurance-focused A.M.Best,todevelopformalevaluativemeasuresofinsurers’climateriskmanagement programs.Standard&Poor’shasbeenevaluatinginsurers’ERMframeworks 82 formany years,yettheirevaluativeframeworkdoesnotincludespecificcriteriaonhowcrosscutting climaterisksareintegratedintotheseframeworks.Asclimateriskrepresentsasignificant threattoinsurers’corebusinesses,regulatorsshouldadvocateforratingsagenciesto addressthisgapintheirinsurerratingsprocesses. ñ Provide Insurers with Comprehensive Climate Science Resources Theresponsesfromallthreesegmentsofinsurersfrequentlyshowedthatinsurerswere eitheruninformedordismissiveofclimateriskstotheirbusinesses.Whileregulatorsneed notattemptto“convince”unwillinginsurersoftherealitiesofclimatechange,creatinga databaseofinsurance-relevantandpeer-reviewedclimatescienceresearchwouldprovide auseful,scientificbasisforfurtherindustryactiontoaddressclimaterisks.Suchefforts couldincludetheNAIC(orotherindustrybodies)conveningapanelofinsuranceand climatescienceexpertstocuratearangeofsuggestedclimatescienceresourcesforthe industrytodrawfrominanon-ideological,non-partisanmanner.

82 ThemostrecentERM-relatedcommentaryreleasefromS&Pislocatedhere: http://www.standardandpoors.com/ratings/articles/en/us/?articleType=PDF&assetID=1245351301034

CHAPTER6 54 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Bibliography

Report on Insurer Climate Risk Disclosure Survey AonBenfieldAnalytics, Update from A.M. Best’s 2014 Review & Preview Conference ,March2014, http://thoughtleadership.aonbenfield.com/Documents/20140326_ab_analytics_ambest_re viewandpreview_conference.pdf . BloombergBNA, AES v. Steadfast—Still No Coverage for Climate Change Tort Suits in Virginia ,May17,2012, http://www.bna.com/aes-v-steadfast-2/ . Buck,Michael,“FarmersInsuranceClimateChangeLawsuitSeenasTestCasebyIndustry Watchers,” Best’s News Service ,May23,2014, http://www3.ambest.com/ambv/bestnews/newscontent.aspx?AltSrc=97&refnum=174344 . CarbonTrackerInitiative. Unburnable Carbon 2013: Wasted capital and stranded assets , http://www.carbontracker.org/site/wastedcapital . Carroll,ChristinaM.,J.RandolphEvans,LindeneE.Patton,andJoanneL.Zimlzak, Climate Change and Insurance .AmericanBarAssociation,2012. TheCenterforClimateandSecurity. Homeland Security and Climate Change: Excerpts from a Senate Hearing ,February2014, http://climateandsecurity.org/2014/02/13/homeland- security-and-climate-change-excerpts-from-senate-hearing/ . CentersforDiseaseControlandPrevention, Heat Waves ,December14,2009, http://www.cdc.gov/climateandhealth/effects/heat.htm . Ceres, Gaining Ground: Corporate Progress on the Ceres Roadmap for Sustainability: GHG Emissions and Energy Efficiency ,2014, http://www.ceres.org/roadmap- assessment/progress-report/performance-by-expectation/performance-operations/ghg-emi ssions-and-energy-efficiency-1 . Ceres, Insurer Climate Risk Disclosure Survey 2012 ,2012, http://www.ceres.org/resources/reports/naic-report/view . ClimatePolicyInitiative(CPI),“TheChallengeofInstitutionalInvestmentinRenewableEnergy,” March2013,7, http://climatepolicyinitiative.org/wp-content/uploads/2013/03/The-Challenge- of-Institutional-Investment-in-Renewable-Energy.pdf . Coffee,Joyce,“SupplyChainsintheFaceofaChangingClimate,” The Environmental Leader , April30,2014, http://www.environmentalleader.com/2014/04/30/supply-chains-in-the- face-of-a-changing-climate/ . CoreLogic,“2014CoreLogicStormSurgeAnalysisIdentifiesMoreThan6.5MillionUS HomeswithTotalReconstructionValueofNearly1.5TrillionDollarsatRiskofHurricane StormSurgeDamage,”July24,2014, http://www.corelogic.com/about-us/news/2014- corelogic-storm-surge-analysis.aspx . Doran,KaraS,PeterA.Howd,andAsburyH.SallengerJr.“Hotspotofacceleratedsea-level riseontheAtlanticcoastofNorthAmerica,” Nature Climate Change ,January23,2012, 884, http://www.nature.com/nclimate/journal/v2/n12/full/nclimate1597.htm . Ebert,InaandGuidoFunke,“Climatechangeandliability—Everythingyouneedtoknowabout climatechangeandliability,”MunichRe, http://www.be-sure.co.il/uploaded_files/article_85.pdf . TheGenevaAssociation,“LeadingInsuranceCEOsConfirmGenevaAssociationClimateRisk Statement,”May20,2014, https://www.genevaassociation.org/media/878689/pr14-06- climate-risk-statement.pdf .

55 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations TheGenevaAssociation. Liability Issues Related to Climate Risk ,(June2011),5, https://www.genevaassociation.org/media/185056/ga2011-rmsc5.pdf . Glanz,James,“Power,PollutionandtheInternet,” New York Times ,September22,2012, http://www.nytimes.com/2012/09/23/technology/data-centers-waste-vast-amounts-of- energy-belying-industry-image.html . Harman,Thomas.“MostInsurersPreparingResponsetoClimate-ChangeRisk,NAICSurvey Finds,” Best’s News Service ,May13,2014, http://www3.ambest.com/ambv/bestnews/newscontent.aspx?refnum=173980&AltSrc=23 . Howard,BrianClark,“FederalClimateChangeReportHighlightsRisksfor Americans,” May6,2014, National Geographic Daily News , http://news.nationalgeographic.com/news/2014/05/140506-national-climate-assessment- science/ . Hunton&Williams, Insurance Coverage For Climate Change Cases After AES Corp. v. Steadfast Ins. Co .October2011, http://www.hunton.com/files/News/7d354c22-37b5- 413b-a4e8-ae49c456e272/Presentation/NewsAttachment/4a3cfd62-f5f6-459d-a37b-529 5b3ab7eb8/insurance_lit_alert_vol_7_2011.pdf . IMPAXAssetManagement,“BeyondFossilFuels:TheInvestmentCaseforFossilFuel Divestment,” http://350nyc.files.wordpress.com/2013/08/impax-investment-case-for-fossil- fuel-divestment-us-final-1.pdf . Insurance Covered Half of U.S. Disaster Costs 2012: Swiss Re ,April8,2013, http://www.insurancejournal.com/magazines/features/2013/04/08/286908.htm . InsuranceInformationInstitute, Investments , http://www.iii.org/facts_statistics/investments.html . IntergovernmentalPanelonClimateChange(IPCC). IPCC Fifth Assessment Report: Climate Change 2014 ,“Observedimpacts,vulnerabilities,andtrends,”26.6.1,2014,26-28, http://ipcc-wg2.gov/AR5/images/uploads/WGIIAR5-Chap26_FGDall.pdf . InternationalCooperativeandMutualInsuranceFederation,“Insuranceindustrytodouble itsclimate-smartinvestmentbyendof2015,”September24,2014, http://www.icmif.org/news/insurance-industry-double-its-climate-smart-investment-end-2015 . IPCCpressrelease,“IPCCReport:Achangingclimatecreatespervasiverisksbut opportunitiesexistforeffectiveresponses,”March31,2014,1, http://www.ipcc.ch/pdf/ar5/pr_wg2/140330_pr_wgII_spm_en.pdf . Irfan,Umair,“AirPollutionandExtremeWeatherCombinetoKill,” Scientific American , September3,2014. http://www.scientificamerican.com/article/air-pollution-and-extremeweather-combine-to-kill/ . KaminkerC.andF.Stewart,“TheRoleofInstitutionalInvestorsinFinancingCleanEnergy,” OECD Working Papers on Finance, Insurance and Private Pensions ,No.23,OECD Publishing,2012,22, http://www.oecd.org/environment/WP_23_TheRoleOfInstitutionalInvestorsInFinancingClea nEnergy.pdf . Kelley,KevinH.“HurricaneSandy:expectedevent,unexpectedconsequences,” Insurance Day , August29,2014, https://www.insuranceday.com/generic_listing/catastrophes/hurricanesandy-expected-event-unexpected-consequences.htm . Lehmann,Evan,“Envirosquestionifinsurerswillcoverclimateriskstoexecutives,” ClimateWire , May28,2014, http://www.eenews.net/climatewire/2014/05/28/stories/1060000250 . McGuireWoods, Is Negligence Still Insurable in Virginia? AES Corp. vs. Steadfast Insurance Co , April30,2012., http://www.mcguirewoods.com/Client- Resources/Alerts/2012/4/IsNegligenceStillInsurableinVirginia.aspx .

BIBLIOGRAPHY 56 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Mills,E.2012.“TheGreeningofInsurance,” Science 338,1424,December14. http://www.sciencemag.org/content/338/6113/1424.summary . MunichReNatCatSERVICE, Loss Events Worldwide 1980 - 2013: 10 costliest events ordered by overall losses , https://www.munichre.com/site/touch-naturalhazards/get/documents_E- 311190580/mr/assetpool.shared/Documents/5_Touch/_NatCatService/Significant-Natural- Catastrophes/2013/10-costliest-events-ordered-by-overall-losses-worldwide.pdf . NationalAssociationofInsuranceCommissioners(NAIC)&TheCenterforInsurancePolicyand Research, Capital Markets Special Report: Year-end 2013 Insurance Industry Investment Portfolio Asset Mixes ,May6,2014, http://www.naic.org/capital_markets_archive/140506.htm . NAIC, Capital Markets Special Reports: Analysis of Insurance Industry Investment Portfolio Asset Mixes ,August19,2011, http://www.naic.org/capital_markets_archive/110819.htm . NAIC, The Potential Impact of Climate Change on Insurance Regulation ,2008, http://www.naic.org/documents/cipr_potential_impact_climate_change.pdf . NAIC, Update on Insurance Industry Investment Portfolio Asset Mixes ,September24,2013, http://www.naic.org/capital_markets_archive/130924.htm . NAIC, The Potential Impact of Climate Change on Insurance Regulation ,2008, http://www.naic.org/documents/cipr_potential_impact_climate_change.pdf . NationalLungAssociation, National Climate Assessment Highlights the Need to Protect Communities against Health Impacts of Climate Change, May6,2014, http://www.lung.org/press-room/press-releases/advocacy/NCA-Statement-Lyndsay- 050614.html . NaturalResourceDefenseCouncil,“Record-Breaking$17.3BillioninCropLossesLastYear; SignificantPortionPotentiallyAvoidable,” NRDC Media Center ,August27,2013, http://www.nrdc.org/media/2013/130827.asp . Orr,Margaret,“New‘PotentialStormSurgeFloodingMap’aimstopreventdeathsduring hurricaneseason,” WDSU News ,March25,2014, http://www.wdsu.com/news/local- news/new-orleans/new-potential-storm-surge-flooding-map-aims-to-prevent-deaths-during -hurricane-season/25157598#ixzz32wTzN6q7 . PartnershipwithCambridgeUniversityandIIGCC,UNEPFI,“ClimateChange:Implications forInvestorsandFinancialInstitutions,”June24,2014, http://www.unepfi.org/fileadmin/publications/cc/IPCC_AR5__Implications_for_Investors__ Briefing__WEB_EN.pdf . SenatorSchumer,Charles,“Schumer:afterSandy,homeinsurancecompaniesare increasinglyabandoningLongIslanders—eventhoseunaffectedbythestorm—forcing themintofarhigher-priced,lower-coverageplan;willcallforFEMAtobringserious penaltiesagainstcompaniesiftheycontinuetoleavemarket,”June24,2013, http://www.schumer.senate.gov/Newsroom/record.cfm?id=344160 . StandardandPoor’s, Evaluating the Enterprise Risk Management Practices of Insurance Companies ,2005,3, http://www.actuaries.org.uk/system/files/documents/pdf/insurancecriteria.pdf . Stiles,SkipandHulst,Shannon, Homeowners Insurance Changes in Coastal Virginia , WetlandsWatch ,2013, http://www.floods.org/ace- files/documentlibrary/committees/Insurance/WetlandsWatch_Insurance-study.pdf . Thompson,T.M.,S.Rausch,R.K.Saari,andN.E.Selin.“ASystemsApproachtoEvaluating theAirQualityCo-BenefitsofU.S.CarbonPolicies.” Nature Climate Change , http://www.nature.com/nclimate/journal/v4/n10/full/nclimate2342.html .

BIBLIOGRAPHY 57 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations Titus,M.Patricia“Insurersabandoncoastalmarket,” Coastal Point ,April19,2008. http://bethanybeachnews.com/content/insurers_abandon_coastal_market . UnitedNationsEnvironmentProgrammeFinanceInitiativeandPrinciplesforResponsible InvestmentAssociation, Universal Ownership: Why Environmental Externalities Matter to Institutional Investors (NewYork:UNEPFinanceInitiative,October2010),25, http://www.unepfi.org/fileadmin/documents/universal_ownership_full.pdf . USDepartmentofEnergy, Buildings Energy Data Book ,2011,“Chapter3:Commercial Sector,”3.4.1, http://buildingsdatabook.eren.doe.gov/ChapterIntro3.aspx , http://buildingsdatabook.eren.doe.gov/TableView.aspx?table=3.4.1 . USGlobalChangeResearchProgram, Climate Change Impacts in the United States: Third National Climate Assessment , http://www.globalchange.gov/ncadac . USGlobalChangeResearchProgram, Human Health , http://nca2014.globalchange.gov/report/sectors/human-health . USGlobalChangeResearchProgram, Third National Climate Assessment , http://www.globalchange.gov/what-we-do/assessment . “ZurichMakesaSignificantCommitmenttoGreenBonds,”InterviewofCeciliaReyes,CIO, http://www.zurich.com/2013/en/annual-review/how-we-do-it/commitment-to-green-bonds.html .

58 | INSURER CLIMATE RISK DISCLOSURE SURVEY REPORT & SCORECARD: 2014 Findings & Recommendations APPENDIX A

Insurance Company Scorecards

Segment: pRopeRty & CaSualty laRge CompanIeS ($5 bIllIon & above DpW)

Rating theme

ACE Ltd. Group ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ Allianz Insurance Companies ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ Allstate Insurance Group ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ American Family ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ American International Group, Inc. ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ Auto-Owners Insurance Group ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ Berkshire Hathaway Group ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ Chubb Group of Insurance Companies ⅥⅥⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ CNA ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ Farmers Insurance Group of Companies ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ Hartford Fire and Casualty ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ Liberty Mutual Group ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ Munich Re Group ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ Nationwide Insurance ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ Progressive Insurance Group ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ QBE Insurance Group ⅥⅥ ⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ State Farm Companies ⅥⅥⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ ⅥⅥⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ Swiss Re Group ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ The Travelers Companies, Inc. ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ USAA Property & Casualty Insurance Companies ⅥⅥⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥ Ⅵ ⅥⅥ ⅥⅥ ⅥⅥ ⅥⅥ Zurich US Insurance Pool Group ⅥⅥⅥ Ⅵ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ ⅥⅥⅥⅥ average Segment Score ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ ⅥⅥⅥ Ⅵ