Climate 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 and specialty risks.
We have an internal property risk modelling team 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 – including from our research collaborations with academic institutions – and to make use of advances in computing capabilities. Using statistical data spanning more than 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 our different lines of business.
Transition risks in our re/insurance business
To ensure appropriate management of transition risks and assess potential impacts on our business, we have set up a monitoring system that combines expertise in risk management and casualty underwriting, as well as for relevant legal developments.
For the other types of transition risks described in Climate-related risks and Climate-related opportunities 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 use our Sustainable Business Risk Framework to identify and address potential sustainability risks in all our underwriting and investment transactions (see 2019 Sustainability Report). 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 businesses with more than 30% exposure to thermal coal utilities or mining and for offshore drilling activities in the Arctic.
In 2019, we continued the implementation of our thermal coal policy for treaty business with over 300 engagements with insureds across all regions. We also intensified our efforts to decarbonise our business by committing to net-zero emissions by 2050 on the liability and the asset side.
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 Sustainable Business 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 2019 Sustainability Report.
Swiss Re is committed to investing its assets responsibly via a controlled and structured investment process by integrating ESG criteria. In 2017, as part of our continuous improvement, we switched to benchmarks composed of higher ESG-rated companies for our active corporate credit and listed equities portfolios. For more information about our approach to ESG integration, see our publication “Responsible investments – The next steps in our journey”, published in 2018 and available at swissre.com, as well as our 2019 brochure “Responsible investing – Our approach”.
At the 2019 UN Climate Summit in New York, the UN-convened Net-Zero Asset Owner Alliance (AOA) was launched. As a founding member of the AOA, we have committed to having a net-zero greenhouse gas investment portfolio by 2050. We also joined the global Science Based Targets initiative and will develop science-based emission reduction targets. Our commitment also includes advocacy for measures aimed at a low-carbon transition of economic sectors.
As part of our dedicated approach towards climate risk management, we review our corporate credit and listed equities portfolios on an ongoing basis to track the development of our carbon footprint, as well as related forward-looking indicators. Additionally, we monitor our coal and oil sands-related investments that are below the set thresholds. As part of our active risk management, we stopped investing in coal and oil sands-related companies that are above the thresholds (for details, see Climate-related risks).
Further actions to support the transition to a low-carbon economy are described in the section Opportunities for our investments.