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The European Insurance and Occupational Pensions Authority’s (Eiopa) plans to impose capital charges for insurers’ exposure to nat cat risk could affect pricing and the insurability of such risks, warns Fitch.
“As the severity and frequency of nat cat claims increases… the insurance and reinsurance industry will have to provide more and more capital to cover the same amount of risk exposure,” Fitch states in a new report.
In turn, prices will rise and buyers may not be able to pay for nat cat protection, which could trigger state intervention, Fitch adds.
“Governments may decide to provide insurance cover above and beyond what the insurance and reinsurance industry may be willing or able to offer,” Fitch notes.
But the report adds that climate change will have a minimal impact on most European insurers’ ratings, despite being the most important environmental, social and governance (ESG) risk for non-life companies.
In analysis of the impact of climate change on insurers’ credit profile, Fitch has assigned most (75%) an ESG relevance score of three (minimal impact), for exposure to environmental impacts (EIM). This is on a scale that ranges from one to five.
Lloyd’s was the only European issuer to record a score of four (medium impact) for EIM risk. This is based on its underwriting and reserving exposure to nat cat risks with a property account at 45% of gross written premium in 2019, Fitch said. It added that Lloyd’s’ financial strength rating exposure to global catastrophes is high, although it has come down in recent years.
A further 23% of carriers, mainly niche businesses including credit insurer Coface and Nuernberger Beteiligungs, with low or no exposure to nat cat risk, recorded EIM scores of two (no impact).
Fitch says nat cat risk and the impact of climate change is built into capital requirements, which it says are well managed by insurers.