While some prominent insurance companies are disassociating from coal, an S&P Global Market Intelligence analysis of U.S. regulatory data found that many insurers hold significant investments in companies that depend on coal as a source of revenue.

Climate change worries are driving campaigns to push insurers away from the coal industry due to what they describe as business risks posed by the effects of rising global temperatures. A review of filings showed that the 20 insurers with the most coal exposure held, as of 2018, a cumulative $40.30 billion in investments in companies that mine coal or power producers that generated more than 30% of their electricity from the fuel in 2017.

A majority of that total came from investments in companies that use coal for generating power; there was relatively little investment in actual coal producers. For example, Manulife's John Hancock Life Insurance Co. USA ranks sixth among insurers exposed to coal investments. A spokesperson said those investments skew toward utilities rather than coal mining companies.

"We have seen natural gas increase as a primary source of power generation within our investments, and as renewable sources of power generation have grown over the past several years, we too continue to expand our portfolio of investments to include hydroelectric, geothermal, wind and solar," the spokesperson said.

Business impact

Although there has been a large push in Europe for insurers to reduce exposure to coal, movement on the issue has been slower to develop in the U.S.

Several environmental campaigns are targeting insurers directly. While a lot of early progress was focused entirely in Europe, Chubb Ltd., a major U.S. insurance player, recently adopted a policy to exclude the underwriting of coal projects. Investor attention to environmental, social and governance factors is increasingly affecting insurers' credit profiles, and exclusionary policies targeting coal are not expected to result in a "meaningful loss of business" for insurers that are generally well-diversified in their lines of business, said Brandan Holmes, a vice president and senior credit officer at Moody's.

In addition to addressing public pressure on the issue, insurers also recognize potential harm to their bottom lines if, for instance, they are forced to pay out for wildfires or other catastrophes exacerbated by climate change, Holmes said. Even apart from the direct impacts of climate change, investors in coal assets run the risk of seeing those assets become stranded if policymakers take action to reduce carbon dioxide emissions.

"From our perspective, when we assess the impacts of these things on credit risk, I would say reducing exposure to coal at this stage is sort of at the margins because it's not a massive line of premium for most companies," Holmes said.

Fewer options for coal

While it may not make much difference for insurers, an already-stressed coal sector needing insurance and investment to stay in business could take a big hit.

"Insurers' retreat from underwriting coal business has left coal-fired generators with a significant reduction in available capacity," risk management and insurance brokerage and advisory Willis Towers Watson said in its 2019 review of power and renewable energy markets. "This reduction in available capacity will invariably see upward pressure on rates and coverages as the competition for market share in this specific sector will be much more limited."

Exxaro Resources Ltd. CEO Mxolisi Mgojo on an Aug. 22 earnings call noted increased pressures stemming from climate change concerns as the company makes "definitive and structural changes" to take a proactive response to create a more sustainable organization.

"We have witnessed an increase of inquiries from shareholders about our climate risk response," Mgojo said. "Secondly, we are also experiencing higher insurance premiums in the renewal of our insurance policies and will be incurring increased cost resulting from the recently introduced carbon tax."

Coal companies require a significant amount of insurance and other financial assurance to operate in many jurisdictions. For example, as of the end of 2018, Peabody Energy Corp. reported $1.59 billion in outstanding surety bonds and $245.0 million in letters of credit with third parties to provide required financial assurances for land reclamation, workers' compensation, insurance and other obligations. The company warned in its securities filings that policies that are unfavorable to new coal plants and coal mining companies limit their business choices.

"Our financial assurance obligations may increase or become more costly due to a number of factors, and surety bonds and letters of credit may not be available to us, particularly in light of some insurance companies' announced unwillingness to support fossil fuel companies," the company wrote in its most recent annual filing.

The company believes that the world will be using coal for many decades, and it should come from "sustainable coal companies," said Vic Svec, senior vice president of global investor and corporate relations at Peabody.

"If you drive first-tier, sustainable companies from coal, then the resulting effects will be negative for multiple stakeholder groups and society as a whole," Svec said. "The twist here is that within our challenges may be embedded opportunities for those with the wherewithal to remain financially sound, to manage well, to insist on responsible mining and to encourage advanced technologies to continually reduce emissions."

Insurers are already careful to avoid covering policyholders considered to have a poor environmental track record, said Michael Barry, a spokesperson for the Insurance Information Institute. Strategies to deal with the risks posed by potential coal customers vary widely.

"I would say right now there's no consensus on it," Barry said. "If insurance coverage and investments are completely taken away from businesses who operate legally, it potentially creates more risks for society, more economic disruption."

Campaigns pushing forward

Peter Bosshard, a campaign coordinator with Unfriend Coal, said at least 16 major insurers have come out with policies restricting the amount of their business associated with coal. Many of those, such as Allianz Group, Generali, Hannover Re, Swiss Re AG and Zurich Insurance Group AG, are based in Europe.

"The interesting thing is that the momentum is accelerating. Nine of the 16 have only adopted their policies this year and the trend is becoming more global," Bosshard said. "I think those that are still exposed to coal really have to be prepared to see their reputation tainted."

Unfriend Coal, a global campaign aimed at pushing insurers out of the coal business, is preparing an update of its scorecard on insurance companies' coal policies. Insurers are brand-conscientious and respond to the scorecard for fear of looking like laggards with regard to climate change, Bosshard said.

Ross Hammond, a senior strategist for the Insure Our Future campaign, said the organization will specifically target Liberty Mutual Holding Co. Inc. and American International Group Inc. to try to prompt them to take action this year.

"For American companies, the expectation is for them to catch up to their peers," Hammond said.