TCFD Risk management
The processes we use to identify, assess and manage climate-related risks are integrated into our risk management, underwriting and asset management.
Sound risk management, underwriting and asset management lie at the core of the re/insurance business. This enables us to use our existing processes and instruments to address climate-related risks.
To assess our P&C businesses accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the potential effect of climate change on their frequency and severity.
Natural catastrophes constitute one of the core risks modelled in Swiss Re’s risk landscape. Specifically, they are one of three categories in which we classify and model our P&C re/insurance risks (the other two being man-made and geopolitical risks). These risks arise from the coverage we provide to our clients for property, liability, motor, accident plus specialty risks.
We have an internal property risk modelling team of around 50 people that builds, maintains and updates sophisticated models for all relevant natural catastrophe risks (flood, tropical cyclones, wind storms, earthquakes). The models are based on current scientific knowledge and are regularly updated to include new scientific findings and to make use of advances in computing capabilities. Using statistical data spanning 100 years, our models are capable of simulating probabilistic “daughter” events that may have never occurred in reality but that may occur in the future.
Swiss Re’s full proprietary integrated risk model is an important tool for managing the business: we use it to determine the economic capital required to support the risks on our books as well as to allocate risk-taking capacity to the different lines of business.
Transition risks in our re/insurance business
To ensure appropriate management of transition risks, we have set up an annual monitoring system that combines expertise in risk management, casualty underwriting and relevant legislation to understand the developments in the US market, in particular, and to assess any potential impacts on our business. An underwriting guideline regulates the limits and triggers for the more exposed types of risks. Any deviation from the guideline must be discussed and documented in the underwriting file.
For the other types of transition risks (as well as opportunities) described above we also have risk management systems in place. Technological developments are monitored through Swiss Re’s respective underwriting units and pricing of associated covers is reviewed on an annual basis.
General sustainability risks in our re/insurance business
We consistently use our Sustainability Risk Framework to identify and address potential sustainability risks in all our underwriting and investment transactions. This framework continuously evolves to reflect scientific knowledge and internal standards. With respect to climate change, this framework prevents us from offering any re/insurance cover to off-shore drilling activities in the Arctic and use predefined quality criteria to screen transactions in the areas of oil sands, fracking and shale oil.
As a further refinement of our approach to managing sustainability risks, we have recently started to develop a carbon risk steering mechanism. Its key component will be a carbon risk model designed to measure our carbon intensity and associated risks embedded in our re/insurance business.
The initial part of this carbon risk steering mechanism will take form of a thermal coal policy, to be integrated in the Sustainability Risk Framework by mid-2018. It will apply across all lines of business on the direct, facultative and treaty sides. This transition will take some time and constructive dialogue with our clients.
Swiss Re is a long-term investor. Therefore, it is important that we also take a long-term view on the risk factors that may have an adverse impact on our portfolio, such as climate change. Hence, sustainability and climate change are essential topics for our Asset Management. Our Sustainability Risk Framework enables us to identify and address environmental and human rights concerns throughout our business. Its criteria are fully applied to our investments. For further details, see above and our 2017 Corporate Responsibility Report.
Swiss Re is committed to investing its assets responsibly via a controlled and structured investment process, integrating ESG criteria. As part of our continuous improvement, we switched to benchmarks composed of higher ESG rated companies for our active listed equity and credit portfolios.
For our dedicated approach towards climate risk management, we review our credit and listed equity portfolio along the development of our carbon footprint on a regular basis. We also monitor our portfolio on coal related investments. As part of our active risk management, we stopped investing in coal-related companies (for details, see Climate-related risks section).
Further actions to support the transition to a low carbon economy are described in the section “Opportunities for our investments”.