Interview conducted by Dr Gerasimos Haritopoulos
1. A general comment on how climate change affects Allianz and the insurance industry in general.
Global warming threatens to radically change our climate and environment
Climate change, mainly caused by human-activity induced (anthropogenic) global warming, poses a major risk to the livelihoods of millions of people worldwide. It affects the wealth of societies and the value of companies since the frequency and severity of weather extremes – such as heat waves, droughts, floods, and potentially also storms – are expected to increase and sea-levels are rising. The first sectors affected will be coastal infrastructure, agriculture and water, but also energy – as avoidance of climate emissions will have to start there.
Climate change impacts the financial sector
The consequences of climate change are materially affecting insurers’ operations across all lines of business.
Insurers are exposed in two ways: through policies covering damage caused by natural disasters, e.g. storms and floods, and as large-scale institutional investors with e.g. significant stakes in companies affected by changing weather patterns, tightening regulations and shifting consumer behaviour. Furthermore, societies will call on the financial industry to lead the path to a clean and safe future.
2. Are there any data through the years showing how climate change is affecting payouts by Allianz and comparisons?
Climate change-related losses are still within the noise of natural variability; we do not yet see a higher frequency or severity of losses from climate change for 2016; however, we believe global warming will lead to increased insured losses caused by weather related events. Net losses from Nat Cat events (including non-weather) are volatile (they were at their lowest levels in 2015 since 2009) were €400mn in 2014, compared to 2013 with€1,218 in a very active Nat Cat year. Assuming weather-related claims are at previous years’ levels, overall underwriting profitability are expected to remain stable due to a dynamic and improving pricing practices.
(As a general background: Weather-related natural catastrophe (Nat Cat) events: As a large insurer our exposure to climate change-related perils is mostly indirectly through the risks we accept for our insurance clients. Weather-related Nat Cat events such as storms or floods directly affect our clients’ assets, e.g. property, cars. In the case of a major Nat Cat event, the accumulated claims exceed the initial budget for Nat Cat and consequently impact the overall profitability of our property & casualty business. In the last decade claims related to Nat Cat events have almost doubled, mostly due to strong exposure growth, also in hazardous regions (Source Munich Re, incl. non-weather), with particular commercial lines being more prone to storms and floods in the context of Nat Cat losses (40%; Source Allianz). As globalization has connected economies, we are also experiencing Nat Cat events not only causing major damage locally but setting off disruptive chain reactions in global supply chains.
The P&C segment is dominated by classical protection, where earned premiums cover the expected losses of the offered protections and associated administration costs. In case an unexpected event (e.g. windstorm) occurs, for that given year the underwriting profitability is lower than expected. Changes in profitability over time are measured based on loss and combined (including administration costs) ratios and their fluctuations. Our pre-diversified internal premium risk capital allocated to Nat Cat risk is dominated by our top 5 perils: Europe windstorm, U.S. hurricane, Germany hail, Australia hail and California earthquake (as of 12/2014). Changes in storm frequencies and intensities are likely to occur in the future, even though the magnitude and way of changes are poorly understood for all perils. Most likely the intensity and frequency of severe convective storms is to increase with the subsequent higher risk of hail and flood. E.g. our recent scientific study on extreme precipitation in Northern Italy shows that significant changes (in intensity) for flash flood precipitation events are only to be expected in the 2nd half of the 21st century, however results are subject to large uncertainties.)
3. Is there data that shows how stakeholders and the company have benefited from the actions taken to battle climate change?
Allianz is included in a variety of sustainability indices and received top ratings for its management of sustainability issues. In the CDP Investor rating, Allianz discloses its climate change performance and strategy. Other ratings such as MSCI, highlight Allianz’s leadership on climate change issues. These ratings allow investors to incorporate sustainability-related information into their investment decision-making.
In our asset management business (Allianz Global Investors and PIMCO), we offer a variety of SRI funds that are focused on climate change related issues. On top of that, the investment strategies of individual clients can be adjusted to fit the climate-conscious investor’s need.
For details about ESG Ratings please see page 74 of the Sustainability Report 2015. https://www.allianz.com/v_1462349129000/en/sustainability/media-2016/Allianz-Sustainability-Report-2015.pdf#page=74
More information on ESG in Third Party Asset Management: See page 44 of the Sustainability Report 2015. https://www.allianz.com/v_1462349129000/en/sustainability/media-2016/Allianz-Sustainability-Report-2015.pdf#page=44
As an investor of third-party assets, we received several awards e.g.: FERI Euro Rating Awards 2016; one of top 5 in category “SRI”, see: https://www.allianzglobalinvestors.de/web/main?page=/cms-out/ueber-uns/unsere-gruppe/auszeichnungen/awards.html
SustainCase provides a good overview of how companies are approaching sustainability issues. This information supports amongst others the general public to better understand the role companies play in their local communities and in a global scene.
Our main objective at SustainCase is to demonstrate how important it is for companies to deal with CSR/ sustainability issues by taking solid action: by identifying a company’s most important impacts on the environment and stakeholders and by measuring, managing and changing. This is CSR/ sustainability reporting done responsibly. Furthermore, with every year’s sustainability report, a company presents facts and confirms that a continuous cycle of improvement is in place with SMART targets being revisited. In the case study at this link we outline the actions taken by Allianz to battle climate change, one of the key material issues Allianz is dealing with. We thank Dr Saskia Juretzek, Senior Sustainability Manager at Allianz, for this interview which gives us further details of Allianz’s efforts.