Released by non-profit organisation Ceres, the report - Assets or Liabilities? Fossil Fuel Investments of Leading US Insurers - revealed that US insurers were the second largest institutional investor in the fossil fuel industry and called on insurers to “plan ahead as climate change and renewable energy continue to shape global markets.”
“The global commitment to greenhouse gas reduction, along with long-term market trends and clean energy technological advances, are expected to spur rapid growth in renewable energy,” the report stated.
“As a consequence, fossil fuel companies will confront the growing risk that some of their assets will lose value before the end of their expected economic life.
“In this context, Ceres’ analysis and findings suggest that carbon asset risk may be a potential threat to insurers’ investment portfolios. This issue is relevant to all insurance industry stakeholders.”
The report found that insurers' massive bonds and equity holdings exposed them to both credit risk and systematic market risk.
Insurers faced uncertainty related to the size and timing of their insured loss payouts and insurance regulators require companies to invest conservatively so they can meet their financial obligations and remain financially stable.
Lead author of the report and director of insurance programs at Ceres, Cynthia McHale told The Guardian that risks were also possible from policyholders as they found out more about insurance investments.
“Their policyholders may not feel comfortable with the fact that their insurance company is investing in oil and gas or coal,” McHale said.
“Maybe we have more risk here than was previously understood, which in turn affects the capital that these insurance companies need to carry.”
McHale noted though, that this change would come slowly as insurers continued to deal with the changing risk and investment landscape.
“It’s a little bit like slowing and turning the Titanic, I think,” McHale said, “You need to start now by getting your arms around where you are exposed.”