A renewed focus on climate change and insurance has led the Bank of England (BoE) to question insurers throughout the United Kingdom on their own risk management in the face of rising carbon levels, the Financial Times (FT) is reporting.

This follows a Ceres report that ranked re/insurers in regard to climate change and which they said demonstrated that operators in the industry were slow to recognise the threat climate change posed to their business models and the larger community. The non-profit Boston-based organisation’s report, which was released about a week ago, is called Climate risk disclosure by insurers: evaluating insurer responses to the NAIC Climate Disclosure Survey.”

Ceres, which is an advocate for sustainability leadership, in a statement about the rankings, said: “Only 11 of 88 major insurers surveyed recently have formal policies in place to deal with growing climate change risks.”

However, companies that did achieve high rankings included several re/insurers with a Bermuda presence.

Association of Bermuda Insurers and Reinsurers (ABIR) members had addressed climate change as long ago as 2009 in a policy statement which included a commitment to education about the issue, promotion of damage mitigation and product development to protect against the impact of climate change.

ABIR also wrote to US President Obama in July 2013 in respect of his Climate Change Plan, and supporting the presidential Climate Action Plan.

Now, hard on the heels of the Ceres report, the BoE has asked approximately 30 insurers if they knew when changing temperatures or more frequent extreme weather disasters might start affecting “the viability of your business model”, according to the FT. The article, headlined ‘BoE demands climate answers from insurers’ included: “The letter from the bank’s Prudential Regulation Authority, seen by the FT, also asks if companies have considered the way climate change could affect their investment portfolios.”

Brad Kading, president and chief executive of ABIR, pointed out that their members actively participate in the Geneva Association’s research on climate change, help fund BIOS research on climate change, support various government actions to transfer catastrophe risk from government programmes to the private sector, and help fund various environmental groups climate change research.

Mr Kading said: “Climate change calls attention to the need for catastrophe protection around the world. ABIR members are leaders in providing catastrophe re/insurance protection. Reinsurers need the ability to pool risk globally so that they can manage the risk from infrequent yet severe events.

“Governments need to focus on removing red tape that impedes insurance market development, remove protectionist barriers that impede cross border risk transfer, improve infrastructure that protects people and property, and enact and enforce building codes like those in Bermuda which protected so many people from losses that would otherwise have occurred from Hurricane Gonzalo.”

Re/insurers with a Bermuda presence that have received a ‘leading’ rank in the Ceres report included XL, Ace, Munich Re, Swiss Re, Allianz, and Zurich. Catlin Group was cited for its leadership in corporate governance.

The BoE’s Prudential Regulation Authority is also questioning insurers to assess the risk that climate change poses to their solvency and earnings, said the FT, “in a sign of regulators’ concern about the potential financial fallout of global warming”. The FT said that the central bank, “which is responsible for the safety and soundness of 1,700 financial firms, hints at possible regulatory requirements, asking what insurers think of ‘the role of insurance regulation’ in relation to climate change.”

Tightening the regulatory environment with regard to climate change has not been publicly addressed by Bermuda authorities although the BMA does require stress and scenario testing that includes large catastrophe losses, said Mr Kading.

ABIR is highly active in regard to the issue, with the body’s letter to President Obama informing him: “ABIR’s 21 global insurers and reinsurers are leading underwriters of re/insurance that provide protection to Americans from weather-related events including drought, thunderstorms and tornadoes, flooding and hurricanes. ABIR’s members are the largest providers of hurricane reinsurance protection to US insurers and also include several leading providers of crop insurance and reinsurance.”

The letter pointed to the ABIR 2009 Climate Change policy statement. It stated: “ ... our membership has backed scientific research on climate change through the Risk Prediction Initiative work of the Bermuda Institute for Ocean Sciences (BIOS) — a leading Bermuda-based ocean and climate science research facility. We would welcome the opportunity to work with your Administration in its outreach to insurance leaders in order to further the understanding of climate change risks and to better promote public policy decisions that will encourage the insurability of homes and businesses.

“Of particular relevance to ABIR members are your proposals to: build resilient communities, learn from the lessons of Hurricane Sandy, and encourage safer buildings and improve land use planning to better protect people and property. We’re also encouraged by the proposals to promote risk mitigation through improvements in the National Flood Insurance Program (NFIP) and other ‘public’ insurance programmes.

“If implemented we believe the government’s heightened focus on hazard mitigation, building resilience, land use planning and building safer/stronger communities enhances the opportunities for private capital to insure and reinsure catastrophe exposed risk thus reducing further exposure to taxpayers in subsidising public insurance programmes. Importantly it would also protect people and property from damage and injury with stronger and safer communities.”