Insurance Jottings

British Report Says London Joining EU Financial Services Market May Not Be Worth It

The City of London may be better off staying out of the EU’s financial services market as it would have to sacrifice autonomy over setting rules to win full access, a report by Britain’s upper house of parliament said on the 24^th March.

The European Union has yet to grant Britain direct financial market access after it left the bloc on the 31^st December and large amounts of trading in stocks and derivatives denominated in euros has shifted from London to Amsterdam.

Brussels will consider whether to grant full access, known as equivalence, once it has agreed a memorandum of understanding with Britain on a new forum for cooperating on financial rules, an agreement which is due by the end of March.

“We agree that broad positive equivalence determinations would best meet the needs of practitioners in both the UK and the EU, but recognise that in many areas the EU is unlikely to grant these without the UK sacrificing more decision-making autonomy than equivalence is worth,” the lawmakers’ report said.

The new cooperation forum was a start, it said.

“However, this dialogue will be worth little if it is not based on transparency and trust. We urge the government and regulators to pursue as deep a level of cooperation, predictability and information sharing as possible,” it said.

The Bank of England has warned that Britain’s financial services industry, which accounts for 7% of the country’s economic output, should not be forced to accept EU rules.

Britain has already published proposed changes to regulations covering company flotations and financial technology firms, and will also amend solvency rules for insurers.

But the government has said there will be no bonfire of regulations as it reviews its financial rules, an assurance the lawmakers in the House of Lords welcomed in their report.

Financial firms would like the new forum, which will be for regular, informal talks between regulators, to also include formal consultations with the industry.

“The government should consult regularly to ensure it is representing the UK financial services sector’s interests and priorities in the dialog,” the House of Lords report said.

“Changes should be transparent and designed to enhance the attractiveness and competitiveness of the UK’s financial services sector,” it said.

Financial services contributed £132 billion (US$182 billion) to the British economy in 2019 with a third of exports going to the EU.

Insurers urge EU regulators to implement single access point for ESG data

Insurers have called on the European Commission (EC) to implement a bloc-wide single access point for sustainability-related company information, arguing that access to reliable public data is currently limited and needs to be improved.

NZ start-up Bounce launches Lloyd’s SIAB parametric earthquake cover

New Zealand-based start-up Bounce Insurance is to launch a new parametric-based Lloyd’s product to provide cover against earthquake risk. (SIAB is Syndicate In A Box)

Lloyd’s has launched a parametric earthquake insurance policy in New Zealand, in partnership with start-up Bounce Insurance, which uses cutting-edge technology and real-time data to automatically pay customers within five days of a strong earthquake.

The new product, also called Bounce, is designed to provide New Zealanders with affordable earthquake insurance and fast claims payments, to support customers’ needs following an earthquake and quickly cover immediate expenses incurred. It does this by tracking Peak Ground Velocity (PGV), which triggers payment at levels of 20 centimetres per second and above.

Bounce has been developed by the company’s founder, Paul Barton, in partnership with Lloyd’s, Guy Carpenter, Marsh and Jumpstart Insurance, an Oakland, California-based surplus lines insurance broker.

The development of this parametric insurance product follows Lloyd’s commitment to remove complexity and provide enhanced coverage and clarity for their customers through simpler products.

Bounce does not replace conventional earthquake insurance which covers significant losses. It works alongside conventional products to offer accessible earthquake insurance, with low monthly premiums, providing customers and their communities with financial resilience in the immediate aftermath of an earthquake. Bounce provides immediate cash flow to cover a wide range of miscellaneous expenses to kick-start financial recovery.

The product uses data from GeoNet / GNS Science, the New Zealand government agency responsible for measuring earthquakes, to objectively identify areas where customers have experienced a strong earthquake. Lloyd’s said this removes any potential conflicts of interest and provides transparency to customers on the data used and reliability of the product.

Payment eligibility is based on shaking intensity (the parametric trigger). If the customers’ location is subject to shaking with a PGV of at least 20 centimetres per second, they would qualify as being eligible to receive payment within five days.

Claim payments are based on the strength of any earthquake, with payments based on “steps,” which means that the stronger the earthquake the more of the cover is paid out.

“We’re thrilled to be able to step up and provide a technologically sophisticated and innovative earthquake insurance product, Bounce, which will provide customers with much

needed support and financial resilience in the immediate aftermath of an earthquake,” commented Lloyd’s CEO John Neal, in a statement.

“The launch of Bounce is a hugely significant development for the New Zealand insurance market. This pioneering coverage has the potential to generate considerable societal benefit through providing individuals and communities with the financial resilience to address future earthquake events,” said Victoria Carter, chairman, Global Capital Solutions, International, at Guy Carpenter.

“Bounce can give households and businesses confidence they will receive financial support quickly after a major quake,” according to Paul Barton, founder and CEO, Bounce, which is a Lloyd’s coverholder. “A wider benefit of our mission, to help Kiwis bounce back quickly, is that more money flows into our communities when they need it most. We have partnered with world leaders in insurance, but we are still very much a Kiwi company focused on Kiwi solutions.”

France’s AXA Drops German Power Giant RWE as a Client over Large Coal Operations

AXA SA, France’s biggest insurer, is dropping German energy giant RWE AG as a client in a decision which highlights how taboo the coal business has become.

Not even an appeal from RWE Chief Executive Officer Rolf Martin Schmitz to his counterpart at AXA, Thomas Buberl, was enough to persuade the insurer to retreat from its conviction that the utility’s coal operations are too large and it’s moving too slowly to shrink its carbon footprint.

“By turning away one of Europe’s biggest utilities because they are too dependent on coal, AXA has set an important precedent for itself and other insurers,” said Peter Bosshard, finance programme director at environmental non-profit the Sunrise Project, adding that RWE must be an account worth millions of dollars a year in insurance.

Rejecting customers amid Europe’s deepest recession since World War II, shows how, for some companies, climate change has gone from a talking point on panel discussions to a key factor in day-to-day business decisions. Insurers like AXA carry a particularly big stick, since there are only a handful big enough to cover global customers.

An AXA spokeswoman said the Paris-based insurer doesn’t comment on individual clients. She wasn’t more specific, except to say that “we have just applied our policy.”

At RWE, a spokeswoman said the company doesn’t provide information about the scope of its relationships with its many individual insurers. RWE is changing and is “already a global leader in the field of renewable energy” and has cut its CO2 emissions by 90 million tons since 2012, she said.

AXA became the first insurer to impose coal-related underwriting restrictions when it made the choice in 2017 and the company stopped providing insurance for coal mines and plants at the end of 2020 after a two-year grace period expired, people familiar with the matter said.

With RWE, one of Europe’s biggest coal mine operators and largest emitters of greenhouse gases, AXA is going even further. The French company will sever all its ties with the utility by the end of next year, even refusing to insure RWE’s renewable projects, the people said.

Nicolas Jeanmart, head of personal and general insurance at Insurance Europe, the European federation of national insurance associations, said he isn’t aware of any other companies who have been dropped by an insurer due to concerns about climate change.

AXA’s coal policy prohibits insurance to companies producing more than 20 million tons of coal per year. Last year, RWE extracted 65 million tons, company filings show. RWE’s installed coal capacity surpassed ten gigawatts in 2020, accounting for 25% of its total power capacity, while renewable energy sources contributed a similar amount.

What makes the move by AXA particularly striking is that RWE, although a major coal producer, has committed to become a carbon-neutral company by 2040. In December, a group of climate scientists gave validation to RWE’s climate targets, saying they were in line with the objectives of the Paris Agreement. Armed with an endorsement from the Science Based Targets Initiative, a non-profit which helps companies translate the Paris Agreement’s aim of keeping global warming under 1.5 degrees Celsius into concrete measures, RWE launched a charm offensive at the start of the year.

This included a call from Mr Schmitz to AXA’s Mr Buberl asking to be allowed back into the fold.

As coal is the most carbon-intensive fossil fuel, restricting support to companies involved in extracting or consuming it is typically a first step for financial firms which are designing sustainability strategies. At least 65 insurers with combined investments worth US$12 trillion — more than 40% of the industry’s total assets — have either adopted a divestment policy or committed to making no new coal investments, according to the Insure Our Future campaign, which is pressing insurers to stop underwriting and investing in climate-damaging projects.

The result is it has become more expensive and harder to get insurance, something which is a regular gripe of companies from the US to Australia. Coal companies are facing rate increases of as much as 40%, according to a report from broker Willis Towers Watson.

And for a company the size of RWE, which has a market capitalisation of more than €20 billion (US$24 billion) and operations spanning 18 countries, losing an insurer can be very burdensome, said Heffa Schuecking, a director of German environmental non-profit Urgewald.

By the end of next year, Allianz SE, Germany’s biggest insurer, has plans to exclude, from its property and casualty insurance portfolio, any company which derives 25% of its energy generation from coal or has five gigawatts or more installed thermal coal capacity.

RWE currently fails on both counts. Zurich Insurance Group AG is giving companies which generate more than 30% of their revenue from mining thermal coal, or generate more than 30% of their electricity from coal, a transition period to become compliant with the Paris Agreement.

“The insurance business is very concentrated,” Ms Schuecking said. “If a few big players exclude a company, everyone else knows it and the writing is on the wall that in the future you won’t be a welcome client at the other major insurers.”