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Munich Re's Hoare warns of reputational risks of insuring fossil fuels

Munich Re Syndicate's chief underwriting officer says 'pressure to cease underwriting is very effective. Insurance is an incredible tool for enacting change'

Companies that continue to provide insurance capacity to oil and gas projects may benefit in the short term but at the risk of long term reputational damage, Munich Re Syndicate chief underwriting officer says

Re/insurers that continue to underwrite fossil fuels as other carriers reduce capacity in this area in the face of shareholder and activist pressure will not benefit in the longer term, according to a senior industry figure.

Speaking at a New Statesman conference, Dominick Hoare, group chief underwriting officer at Munich Re Syndicate, said while such “bad actors” may profit in the short term this would not last, given the potential reputational damage.

“The so-called bad actors are supported by third-party capital and behind that capital are third-party institutions made up of individuals with awareness. I think in the short term it will benefit the bad actors, but not in the long term,” Hoare said.

“Reputation is now key and reputation affects your share price,” he continued. “From our point of view, pressure to cease underwriting is very effective. Insurance is an incredible tool for enacting change and the problem is it is almost too powerful.”

Munich Re has recently ceased underwriting new fossil fuel projects.

But at the same conference, there was also a warning that markets in the developing world would be disproportionately affected by an immediate withdrawal of oil and gas insurance capacity compared with developed markets with more diverse energy supplies.

Kipkorir Koskei, director of strategic partnerships and policy at the Insurance Development Forum, cited South Africa and Uganda as two emerging economies that are heavily reliant on fossil fuel energy suppliers.

At the moment, South Africa relies on coal as its chief source of energy. Although the government is aware it needs to transition to renewable energy, an overnight transition is impossible and an immediate withdrawal from the insurance industry would do more harm than good, Koskei warned.

“South Africa needs to change [its reliance of coal] and the government recognises it. They need assistance to get capital in to support the coal industry while they need to move to renewables. It is not a binary decision,” Koskei said.

“There is quite a lot of conversation on just transition of energy and it is being led by the German and US governments in terms of helping transitioning economies such as South Africa and Indonesia change their energy mix. But it’s not going to be overnight.”

Koskei also cited Uganda is an example where Qatar has recently withdrawn from financing the East African Crude Oil Pipeline. The planned pipeline will transfer oil drilled in one of Uganda's national parks 870 miles to a port in Tanzania for export. Experts warn the project will generate 379 million tonnes of climate-heating pollution, which is more than 25 times the combined annual emissions of Uganda and Tanzania.

“In essence these economies need a lot more help to jumpstart the renewable energies space. The potential effects it could have on negative climate change if they are not helped in the right way could be quite devastating,” Koskei warned.

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