A new research has revealed that climate risks can spread rapidly and harm companies, banks and other financial institutions alike. The joint research report by the European Central Bank and the European Systemic Risk Board provides evidence on the systemic nature of climate risks and provides a foundation for a macroprudential policy response. It identifies several amplifiers of climate risk across the financial system. Transition risks may be magnified because of economic and financial linkages between and across banks and companies. The report said interdependent natural hazards – such as water stress, heat stress and wildfires – can amplify physical climate risk, as they can cluster together and exacerbate each other. Market dynamics can also magnify the financial impact of physical risks. For example, a climate shock could lead to a sudden reassessment of climate risk pricing, thereby causing fire sales, where financial institutions – especially those with overlapping portfolios – quickly sell a large number of exposed assets at the same time at distressed prices. Scenario analysis suggests that climate risks might take shape in the financial system in a specific order. First, unforeseen climate shocks could have an abrupt impact on market prices, initially hitting the portfolios of investment funds, pension funds and insurance companies. Second, this sudden repricing could cause companies to default, resulting in losses for exposed banks. In a disorderly transition scenario, marked by an immediate and substantial increase in carbon prices, respective market losses of insurers and investment funds could potentially amount to 3% and 25% on stress-tested assets in the near term. An orderly transition towards net zero by 2050 could soften such shocks and alleviate the fallout for companies and banks, reducing the probability of corporate defaults by around 13-20% in 2050 compared with today’s policies. It would also lessen credit losses for banks. Source: asiainsurancereview.com

Cyber security and data privacy followed by pandemics and other communicable diseases, and administration and fiduciary risks are now ranked as the top people-related risk by companies in Asia. A new report by Mercer Marsh Benefits (MMB) People Risk: Resetting priorities to manage risks for workforce and business resilience, analyses the top 25 people risks and identifies the main barriers these organizations face in addressing these threats. The report surveyed over 2,500 human resource and risk professionals in 25 countries globally and includes data from over 600 respondents from Asia. According to the report only 48% of respondents in Asia believe that their organization has effective cyber security policies, controls and systems in place such as multi-factor authentication and data encryption. Nearly half (45%) of the respondents cited the ‘lack of skilled resources to understand and address risks’ as the main barrier to managing cyber risks. Further, while 76% of respondents in Asia stated that their organization is addressing HR technology obsolescence, fewer than half (45%) believe that they have suitable processes in place to manage digital-first benefits administration and talent management. Respondents in Asia still view pandemics as a top risk, however, only 47% of respondents stated that they have effective policies and support systems in place to enable remote, hybrid or other flexible ways of working and support a culture of employee health, wellbeing and safety (46%). MMB Asia and Pacific regional leader Joan Collar said, “As the pandemic continues to accelerate digitalization, it is no surprise that cyber risks are considered as the top people-related risk in Asia. “The respondents feel 95% of cyber security issues are due to human error, so reskilling and upskilling needs to be prioritized to ensure employees are keeping up with the technological development and changing world of work.” The report said the focus on immediate threats may have come at the expense of support for employees. Despite 89% of respondents in Asia flagging health and safety of employees as a serious threat, risks such as diversity, equity and inclusion, mental health, workforce exhaustion and work-related illness and injury have been deprioritized. “Companies need to adopt a more holistic approach to develop and engage their workforce and be very mindful of blind spots on the horizon, particularly around DE&I and ethics which are key to attracting and retaining the right people. Talent and benefit practices should also be aligned with the values of the organization and include a clear position on important issues such as climate change policy, diversity, equity and inclusion and equitable access to benefits,” said Ms. Collar. Source: asiainsurancereview.com

ABRA, Philippines — On 27 July 2022 at 08:43 AM (local time), a magnitude 7.0 earthquake rattled the province of Abra and its vicinity. The epicenter is located 3km northwest of the municipality of Tayum in Abra with a 17-km depth of focus. According to the latest situational report released by NDRRMC on 01 August 2022, this event left 10 fatalities and 394 injured people. Several roads, bridges, and other infrastructures also sustained serious damages which led to an estimated total damage cost of PHP 723M as of this writing.

Insurers in the Philippines are collaborating to factor the value of mangrove forests into portfolios, underwriting processes and business development opportunities to improve the insurability of assets. Asia Insurance Review spoke to Earth Security’s Mr. Alejandro Litovsky and PIRA’s Mr. Michael Rellosa about potential mangrove projects in the pipeline. By Nadhir Mokhtar Mangroves are not just a source of natural carbon capture and storage; they save an estimated $65bn per year in avoided losses from floods and storms and can be 50 times more cost-effective at resisting storms than building concrete seawalls according to research from sustainable finance firm Earth Security. The firm said insurers and reinsurers have paid more than $300bn for coastal storm damages in the last decade and this is expected to increase by 10 times in the next decade as climate change proliferates. It has launched a report ‘Insurance Underwriting with Nature: How Mangroves Can Transform the Climate Strategy of Companies, Cities and Re/insurers’, that focuses on incorporating the economic value of coastal mangrove forests as natural storm barriers. Considering mangroves for pricing The report said recognizing and pricing the value that mangroves provide in damage limitation would give (re)insurers a competitive advantage by offering better-priced policies. It could also help provide cover for physical assets that would otherwise be considered uninsurable. According to the report, coastal ecosystems have been found to reduce annual damages to property from extreme weather in the Philippines by 30%, saving up to $1bn each year. After strong typhoons hit the Philippines repeatedly, communities and infrastructure surrounded by mangroves have sustained fewer losses than neighboring areas where mangroves had been cleared. Earth Security CEO Alejandro Litovsky said, “Insurers have shared that this would allow them to look at areas that they previously thought were uninsurable. I think that changes the landscape of how the sector can think about market development in a way. Twenty to 30 years from now, we’re going into a scenario where many areas that are insured will most likely be uninsurable. Mangroves are providing that extended shelf life of insurability. I think there is a possibility of lower premiums.” Earth Security believes the (re)insurance sector could lead climate innovation by including the value of mangrove forests into CAT modelling and the development products for corporate and government clients. PIRA has convened a working group with Earth Security to collaborate on pilot projects based on the findings of the report. “There are a lot of mangroves in the Philippines. We’re in the epicenter of typhoons. Most built assets in the Philippines are coastal or found near the coasts given the archipelagic nature of our country. So, a study that then demonstrates the productive value of mangroves, coastal assets against storm surges waves, will be a valuable tool in both risk assessment and loss mitigation … But underwriters are a cynical lot and my job is to get them to understand the value of that relationship,” said PIRA executive director Michael Rellosa. Regulatory support Insurers will also need to persuade global reinsurers and brokers to understand the value of mangroves. However, Mr. Rellosa believes persuading underwriters will be easier as the Insurance Commission has expressed interest to provide incentives for insurers working on projects to utilize the value of mangroves. “I think the devil is in the details. You have a report that shows the value of things but turning that into something concrete is another story. So, we must plan carefully and see how we can go forward. Most importantly, we have the regulators on board,” he said. “We have had several meetings on potential or possible incentives that can be granted to regulated entities for mangrove insurance. We support future moves to have tax incentives on this. A tax exemption or tax incentive is a matter that is not within the ambit of the Insurance Commission. However, the Insurance Commission will support PIRA, if requested, in any technical working group moving forward,” said Insurance Commission deputy commissioner Erickson Balmes, speaking at a roundtable discussing the findings of the mangrove report. Improving CAT models The report said proprietary CAT models do not specify climate change scenarios and are based on past data. According to the report, this makes the issue of climate change and weather system disruption a critical challenge for modelers and the (re)insurance companies they serve. “The proprietary models that are used to underwrite are not produced by the insurers themselves and they’re pretty much black boxes. What we thought would happen once in 100 years are happening many times in one year and that really is shaking everyone up … On a positive note, models are starting to emerge that are linking up natural assets with catastrophe modelling and the range of discussions we’ve had with scientists that say this can be done. It’s just that the insurance sector hasn’t seen it yet. And so, there’s a need to connect these dots,” said Mr. Litovsky. However, there is an open-source CAT modelling platform that is widely used in the Philippines that allows for adjustments, the inclusion of new datasets, as well as climate change and ecosystem-related information. The platform is currently undergoing beta testing. Insuring the mangroves Philippine insurers also discussed the possibility of developing insurance products to cover the mangroves. Such products could support post-event reconstruction in the aftermath of typhoons, especially in cities and locations that are dependant on mangroves for protection. “When cyclones hit and mangroves get destroyed, there’s usually a financing gap to deploy money to rebuild, to replant, to restore and this is another opportunity to create a product that will help these locations trigger funding for reconstruction. “This can be done in a variety of ways such as parametric insurance products. We believe there’s a range of ways to create streams that will pay for premiums. That is something that needs to be explored in more detail with specific companies that will be interested in in venturing into that space,” said Mr. Litovsky. Source: asiainsurancereview.com

The Insurance Commission (IC) has granted Maxicare Healthcare Corp a license to operate as a life insurance company in the Philippines. The new insurer has a capitalization of PHP2bn ($36.1m), higher than the PHP1bn required by the insurance law for new domestic life insurers," Insurance Commissioner Dennis Funa said in a statement. MaxiLife is established as a new entity by JE Holdings, Pin-An Holdings Corp, and Maxicare Health Corp. In May, investment firm JE Holdings purchased 42.31% of the common shares of health maintenance organization (HMO) provider Maxicare Healthcare Corp. MaxiLife will be offering insurance coverage to the current Maxicare members, who are afforded treatment, prevention and wellness benefits through their HMO agreements with Maxicare. MaxiLife's license follows one approved in May by the IC for life insurer AIA Philippines Life and General Insurance Company (AIA Philippines), following a merger with Philam Equitable Life Assurance Company (Pelac). Constituent companies to a merger are required to surrender their respective licenses and apply for a new license with the IC after the SEC’s approval of the merger, according to regulatory guidelines. PELAC, a 100% subsidiary of the Philippine American Life and General Insurance (PhilamLife), and a member of the AIA Group, was an inactive company as of 2020 although it was licensed with the IC and compliant with statutory net worth requirements. Source: asiainsurancereview.com

Most companies and governments are 'woefully unprepared' for the knock-on effects of climate change and are creating 'risk blindspots' according to a new report. The new research report by Verisk Maplecroft is the first-of-its-kind study, which looks at risks that will be impacted by climate change – such as civil unrest, political instability, mass migration, economic fragility, resource security, worsening human rights and conflict. Such risks are to increase in prevalence as the severity of climate-related events intensifies. Verisk Maplecroft’s head of climate risk and resilience Will Nichols said, “Organizations and governments have extensive risk mitigation plans for physical climate threats, yet the lack of investment in assessing secondary risks means most are woefully unprepared to deal with the political, economic and developmental impacts of a warming planet.” He said, “It is not just governments that have a blind spot to these threats. The majority of businesses are not currently factoring the cascading climate impacts into scenario analysis and risk management approaches – that need to change if they are going to build resilience in the face of an uncertain future.” The research concludes that most organizations and governments have plans in place to address physical threats and transition risks, but they are “yet to scratch the surface of the wider political, economic and social impacts of climate change, leaving populations, economies and investments highly exposed”. The research, which assesses the susceptibility of 196 countries to these cascading risks, finds the world split into three near-even groups of ‘insulated’, ‘precarious’ and ‘vulnerable’ nations. The insulated group predominantly includes the world’s wealthier countries, while the vulnerable group is generally characterized by those with lower incomes. Africa and Asia’s developing economies, including India, Indonesia and South Africa, are in the vulnerable group that will bear the brunt of these secondary climate risks, finds Verisk Maplecroft. But other geostrategic nations, such as Brazil, Mexico, Russia, Saudi Arabia and Vietnam, are in the precarious grouping and could experience significant instability from secondary climate risks, it adds. Even China could find itself under pressure should its economic strength or tight grip over its society start to slip, the study says. Source: asiainsurancereview.com

Over the past five years, fire and explosion, natural catastrophes and faulty workmanship or maintenance have been the major causes of loss by value of insurance claims according to the Global Claims Review 2022 published by Allianz Global Corporate & Specialty (AGCS). The new report identifies the top causes of loss for companies from more than 530,000 insurance claims in over 200 countries and territories that it has been involved with between 2017 and 2021. These claims have an approximate value of EUR88.7bn ($90.6bn), which means that the insurance companies involved have paid out – on average – over EUR48m every day for five years to cover the losses. AGCS chief claims officer and board member Thomas Sepp said, “Insurance claims from companies have become more severe over the past five years due to factors such as higher property and asset values, more complex supply chains and the growing concentration of exposures in one location, such as in natural catastrophe-prone areas. “The future does not look brighter anytime soon. Companies and their insurers have shown resilience to weather the loss impact of the pandemic, but the ongoing war in Ukraine, a spike in the cost and frequency of business interruption losses and the sustained elevated level of cyber claims are creating new challenges.” Mr Sapp said, “At the same time, the top two causes of claims, fires and natural hazards, remain significant loss drivers for companies. Last but not least, the impact of soaring inflation around the world will bring further pressure on claims costs.” The analysis shows that almost 75% of financial losses arise from the top 10 causes of loss, while the top three causes account for close to half (45%) of the value. Despite improvements in risk management and fire prevention, fire/explosion (excluding wildfires) is the largest single identified cause of corporate insurance losses, accounting for 21% of the value of all claims. Natural catastrophes (15%) rank as the second top cause of loss globally by value of claims. Collectively, the top five causes (based on more than 20,000 claims around the world) – hurricanes/tornados (29%); storm (19%); flood (14%); frost/ice/snow (9%) and earthquake/tsunami (6%) account for 77% of the value of all disaster claims. Faulty workmanship/maintenance incidents are the third top cause of loss overall (accounting for 9% by value) and are also the second most frequent driver of claims (accounting for 7% by number, ranking only behind damaged goods with 11%). Costly incidents can include collapse of building/structure/subsidence from faulty work, faulty manufacturing of products/components or incorrect design. Source: asiainsurancereview.com

Norman R. Cajucom, former Senior Vice President of the Philippine Crop Insurance Corporation, shares his paper entitled “Agricultural Insurance in the Philippines: Innovative Product Development and Scale-Up Amid Climate Risks and Other Hazards” which was commissioned by the National Academy of Science and Technology Philippines (NAST PHL) Task Force on Climate Change. Completed in July 2018, the paper is filled with extensive information on agricultural insurance, some of which were derived from discussions with various colleagues and friends from the industry. To read the paper, please click here.

As you may be aware, the SRA had announced in April that this year’s 18th Singapore International Reinsurance Conference (SIRC) will be held as a hybrid (in-person + virtual) event, the details of which are summarized below: The theme for this year’s conference is “Re-Connecting … Re-shaping the Future!”, which reflects the positive sentiment of the industry following two years of COVID-19 induced restrictions and disruptions, and also focuses on the challenges that global economies and the (re)insurance industry are facing today, with looming inflation, economic disruptions, geopolitical tensions being thrown into the mix as the industry seeks to re-shape itself amidst the global movement towards net zero sustainability and climate resilience. While the details of the conference programme are still being finalized, many of the ‘hot button’ issues such as the rise of anti-globalization; implications of rising inflation; transition to net zero; sustainability, resilience and climate-related issues; would likely feature prominently. In this regard, the SRA is pleased to attach the Press Release announcing the launch of the 18th SIRC website, on which interested practitioners can register for the event; or download details of the Partnership and Meeting Facilities packages, as well as make guestroom reservations at the iconic Marina Bay Sands at special contracted rates for 18th SIRC delegates and participating companies. PIRA member-companies will enjoy a special 20% discount off the applicable registration fee by applying the discount code: 18D-PIRA-20 when registering at: www.sirc.com.sg

In celebration of its 60th Diamond Anniversary, the East Asian Insurance Congress (EAIC) is holding a virtual conference on Sep 21 and 22 (two half days). As founding cities of EAIC, Tokyo and Manila are taking the lead in organizing the event. Attached for your ready reference is the program outline. Registration is free to all EAIC corporate members, including PIRA and PLIA. Registration is already open and can be accessed through the link below. Early sign ups are encouraged to ensure slots. https://www.asiainsurancereview.com/Events/Register/Asia/VirtualEAIC2022