20 April 2023Insurance

Another Big 4 reinsurer leaves Net-Zero alliance; sparks fears of further exits

The Net-Zero Insurance Alliance, which was convened by the United Nations, has lost its third insurer, joining its peers  Munich Re and  Zurich Insurance Group who withdrew their support recently. Analysts have warned that the exit of large founding members in a row could lead to a potential wave of departures and threaten the stability of the alliance.

Hannover Re, the third largest reinsurer in the world, said Wednesday that it was leaving the Net-Zero Insurance Alliance (NZIA) after “careful consideration”.

“Regardless of this, Hannover Re remains committed to its sustainability strategy, the associated goals and its support for the Paris Agreement, and aims to achieve full climate neutrality by 2050 at the latest,” it stated.

The move comes on the heels of the exit of Munich Re at the end of March and Zurich earlier in April. Hannover Re was one of the founding members of the alliance with Munich Re.

While Munich Re cited “material antitrust risks” as limiting the scope of its decarbonisation goals, Zurich said it was leaving to focus on its resources to help clients towards energy transition to a low-carbon economy.

Munich Re said it sees greater value in pursuing its climate strategy by individually taking a science-based approach, which it claims will enable the company to achieve decarbonisation goals even faster than what is required by NZIA to reach net zero.

Analysts at Moody’s highlighted that three exits in a row bring the legal and competitive barriers insurers face in coordinating their response to decarbonisation into focus, and could impede insurers’ ability to manage risk related to the carbon intensity of their underwriting portfolios.

“Wakening of the alliance reduces the momentum of decarbonisation across the broader insurance ecosystem, it will also impact the success of even the largest (re)insurers' decarbonisation plans,” analyst Brandan Holmes said in a note.

“Weakening of the alliance is credit negative for the P&C (re)insurance sector as a whole because it will result in a less consistent and transparent approach to decarbonising underwriting portfolios and hamper the ability of creditors and other stakeholders to understand the changes to risk appetite of individual insurers,” he wrote.

NZIA members with significant US P&C operations, such as Munich Re and Zurich, face “heightened” antitrust risks. Other regions are adapting their antitrust measures to support collaborations based on sustainability, which could reduce the risks for other insurers. However, Moody's suggests that other members may still take cues from Munich Re, Hannover Re, and Zurich in the near future and leave the alliance, even if US antitrust risks are not a factor.

“The exit of large founding members risks eroding confidence in the alliance, which could precipitate further departures, even where US antitrust risks are not a material factor,” it noted.

Moreover, the legal risks associated with the alliance are not limited to antitrust; there is also a potential for other types of litigation related to the published decarbonisation targets and the progress made in regards to attaining those goals, it added.

“Munich Re’s exit from the alliance, while at the same time affirming its commitment to its net zero objectives, highlights how antitrust risk arises from collaboration between competitors, not individual actions,” Moody’s stated.

Interestingly, Munich Re and Zurich are still members of the Net Zero Asset Owner Alliance (NZAOA), which concentrates on cutting emissions from insurers’ investments.

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More on this story

6 April 2023   While Munich Re flagged anti-trust issues, Zurich cites need to smooth client transition.
23 May 2023   Swiss Re joins growing NZIA exodus, following Munich Re, Zurich and Hannover Re.
25 May 2023   Swiss Re, Munich Re and Hannover Re have recently ended their membership in NZIA.