Insurance industry's net-zero progress at risk as departures shake alliance

The insurance industry's path to net-zero underwriting has become more uncertain following the exits of three big-name members, including two founders, from the UN-convened Net-Zero Insurance Alliance.

The departures of Munich Re, Zurich Insurance Group AG and Hannover Re in quick succession have left the alliance with 28 members, including Canadian mutual insurer Beneva Inc., which joined the day after Hannover Re pulled out. But the threat of further high-profile departures looms.

Three of the six remaining founding members — Aviva PLC, Assicurazioni Generali SpA and alliance chair AXA SA — told S&P Global Market Intelligence they remain committed to the pact. The other three were less definitive.

Both Allianz SE and Swiss Re AG said they are "monitoring" the situation, while SCOR SE said the matter is "being reviewed by the group's executive committee and board."

Dampening momentum

The upheaval comes at an awkward time. Alliance members are scheduled to publish their first set of goals under a target-setting protocol this July. The visibility of existing members' plans could have created more momentum around net-zero underwriting and spurred more companies to sign up, but the departures create the risk of the opposite happening, according to Miqdaad Versi, partner and head of the ESG practice at consultancy Oxbow Partners.

"There is now an increased risk of the [alliance] not being the vehicle and the target-setting protocol not being the mechanism through which the industry collaborates on this transition," Versi said in an interview. "If one of the other big players leaves, we've got a real threat to the alliance as a whole."

The alliance holds value as insurers consider collaboration important to their decarbonization efforts. Aviva said in its statement that achieving net-zero "is something companies cannot do in isolation. It requires partnerships, collaboration and new ways of working." Allianz concurred, saying that it sees power in "effective partnerships to drive decarbonization."

The weakening of the alliance will lead to a "less consistent and transparent approach to decarbonizing underwriting portfolios," Moody's said in an April 17 report, adding that the group has been key in driving transparency and consistency of targets and timelines.

Danger in numbers

The antitrust risk associated with working collaboratively on net-zero targets appears to be a big reason for some of the departures and jitters about continuing in the Net-Zero Insurance Alliance. The group has been careful to avoid falling foul of antitrust rules. For example, it does not specify how members should achieve net-zero underwriting and leaves them to set their own targets independently.

The risk arises, according to Moody's, because alliance members could be accused of collaborative behavior that is interpreted as anti-competitive. For example, if a group of insurers coordinated to deny coverage to companies in a specific carbon-intensive sector, that could be deemed a violation of antitrust laws because the resulting lack of competition would push up the price of coverage, the agency said.

Moody's said a key risk stems from companies' US business and noted that both the UK's Competition and Markets Authority and European Union have published draft guidance aimed at facilitating company cooperation on climate goals.

The rating agency pointed out that 43% of Munich Re's 2022 property and casualty (P&C) reinsurance gross written premiums were generated in the US and that 48.5% of Zurich's 2022 P&C gross written premiums, excluding the Farmers Exchanges, were generated in North America.

So far, only Munich Re has explicitly linked its departure to antitrust concerns. Zurich said it left to focus its resources on supporting customers' transition to net-zero, and Hannover Re did not give a reason. Hannover Re derived 43% of its 2022 P&C reinsurance gross written premium from North America, according to slides accompanying its annual results.

The alliance said it does not comment on the actions of individual members as a matter of practice. In an April 12 statement, the group said it and its members will always comply with laws, rules and regulations, including ones pertaining to antitrust issues.

Down but not out

Despite the departures, the alliance is not necessarily destined to fail.

The recent addition of Beneva to the roster could persuade current members to remain, and the publishing of the first set of net-zero targets could rebuild momentum, Versi said.

"If this can happen, the alliance may be able to get back on track, attract new members and build on the [target-setting protocol]," he added.

The alliance's efforts have led to the creation of the Partnership for Carbon Accounting Financials standard for measuring greenhouse gas emissions in underwriting portfolios, the first version of which was released in November 2022.

There is "lots of ambiguity" around whether insurers should set net-zero targets collectively or individually, but the sense from the industry is that the accounting standard will remain "and is a good thing," according to Sylvain Johansson, senior partner at McKinsey.

"Adding carbon intensity as an underwriting portfolio steering dimension is here to stay," Johansson said in an interview. While the methodology will require further development, "every carrier is going to need to add this next to capital requirements, volatility and other measures that you historically used."