Posted on 9-10-2002

Climate Could Bankrupt Insurers

ZURICH, Switzerland, October 7, 2002 (ENS) - Climate change is causing
natural disasters that the financial services industry must address, a
group of the world's biggest banks, insurers and re-insurers warned today.
They estimated the cost of financial losses from events such as this
summer's devastating floods in central Europe at $150 billion over the next
10 years. "Climate Change and the Financial Services Industry," a report
supported by 295 banks and insurance and investment companies, was launched
today at the Swiss Re Greenhouse Gas conference in Zurich.

A partnership between the United Nations Environment Programme (UNEP) and
the financial institutions, known as UNEP Finance Initiatives commissioned
the report. It shows that losses as a result of natural disasters appear to
be doubling every decade and have reached $1 trillion in the past 15 years.
"The increasing frequency of severe climatic events, threatening the social
stability or coupled with significant social costs, has the potential to
stress insurers, reinsurers and banks to the point of impaired viability or
even insolvency," the report concludes.

John Fitzpatrick, CFO and member of the Executive Board of Swiss Re, said,
"Climate change and substantial emissions reductions - like any other
strategic global business challenge - ultimately becomes a financial issue.
The problems associated with environmental disasters quickly become
measured in dollars and cents. Our industry needs to lead by developing
financial solutions and risk mitigation techniques to assist our clients in
achieving global emission reductions." "In addition to the emitting
industry needing to take a carbon constrained future into account,"
Fitzpatrick said, "the financial services industry, of which we are a part,
also has an obligation to contribute to the solution of these problems
through its own investments and business expertise."

Linked to heat-trapping emissions from the combustion of coal, oil and gas,
the environmental implications of global warming are serious. Melting polar
ice caps and glaciers, rising sea levels, distorted weather patterns, and
drought are widely forecast. Coastal cities, crops, and animal habitat
could be destroyed.

But too few financial companies are taking the risks and opportunities
posed by climate change seriously, a survey of mainstream financial
institutions carried out for the UNEP Finance Initiatives report indicates.
Most are "unaware of the climate change issue" or have adopted a "wait and
see policy."

These attitudes are "due to the prolonged wrangling over the Kyoto
Protocol," the report states, compounded by "the lack of solid information
on emissions and delays in finalizing the regulations of the new greenhouse
gas markets."

The protocol, agreed under to the United Nations Framework Convention on
Climate Change, limits the emission of six greenhouse gases linked to
global warming. Thirty-nine industrialized nations were to have been
governed by the original agreement signed in Kyoto, Japan in December 1997,
but the Bush administration said in 2001 that the United States would not
ratify the protocol, and Australia followed suit this summer. It still has
not entered into force.

A small group of financial companies is addressing the issue, but many of
them are reinsurers whose businesses are already feeling the economic
impact of rising, weather related, insurance claims. "This report is a wake
up call for the global financial community. It highlights the real risks
and economic perils they are facing as a result of human influenced climate
change," said UNEP Executive Director Klaus Toepfer. The property market,
where loans for houses and buildings are made over relatively long periods
of time, could be particularly vulnerable as a result of extreme weather
events, the report warns. "Homeowners and companies with property holdings
may find that their insurance cover is cancelled at short notice, leaving
them highly exposed."

Government action to arrest the problem will "inevitably" mean a reduction
in emissions of the main sources of greenhouse gases linked with global
warming, predicts the report. This will require cutbacks and the more
efficient use of fossil fuels such as coal and oil.

Asset managers who are slow to appreciate the climate change threat "may
see the value of energy or power company holdings decline" as investors
become aware of the liabilities linked with carbon intensive industries,
the report concludes. Recommendations in the report's "blueprint for
action" include urging insurers and re-insurers to better reflect the risks
from climate related perils in policies and to develop public/private
partnerships in high risk areas so that cover can be maintained. Commercial
banks should fully price risks from climate change into loan agreements and
give incentives to schemes that encourage energy efficiency or cleaner fuels.

Greenhouse gas trading markets will need standardized accounting methods to
operate, an area where financial professionals can contribute to solving
the problem. "Given the financial muscle available to them," said Toepfer,
"these institutions could move markets and minds to deliver a cleaner,
healthier and less vulnerable world for the benefit of the world economy,
for the benefit of people everywhere." Governments are urged to adopt a
long term global plan to keep greenhouse gases at safe levels. This is
"vital" because the Kyoto Protocol runs out in 2012, the report points out,
whereas "carbon dioxide, methane and the other greenhouse gases can persist
in the atmosphere for many tens of decades."

The report was prepared by investment research and advisory firm Innovest
Strategic Value Advisors of Toronto, Canada, under the direction of the
UNEP FI Climate Change Working Group - Andlug Consulting, Citigroup,
Corporacion Andina de Fomento, Dresdner Bank AG, Gerling Sustainable
Development Project GmbH, Munich Reinsurance Company, Prudential, SAM
Sustainable Asset Management, and Swiss Re.

"Climate Change and the Financial Services Industry" is available online
from October 8 at: http://www.unepfi.net