Climate Summit
Leaders then and now: a history of holding vital talks
The delegates at Bermuda’s inaugural Climate Summit would not be the last to gather on the Island to make decisions of global significance, according to David Hart of the Bermuda Business Development Agency.
“The talent, the ingenuity, and the innovation are here already so we can and should play that leadership role.”
Walter Roban, Bermuda Deputy Premier
Opening the conference, David Hart, chief executive officer of the Bermuda Business Development Agency (BDA), referred to a meeting that took place in December 1953 that had also aimed to make the world a better place.
Soon after that meeting, the so-called Western Summit between British Prime Minister Winston Churchill, US President Dwight D. Eisenhower and French Premier Joseph Laniel, Eisenhower delivered his famous “Atoms for Peace” speech on nuclear non-proliferation to the UN General Assembly in New York.
Hart said: “I am a lover of history and a student of history and I’ve enjoyed getting to know some Bermuda history since I started this post at BDA last October. One of the things I learned recently was a story about how Bermuda has often been a central meeting place for great minds and friends, from both sides of the Atlantic, to come together and discuss important issues of international significance.”
The Western Summit had been held to discuss “very important issues of mutual support”, he said, and so too would the Bermuda Climate Summit.
Bermuda’s risk industry is working to create solutions for the greatest challenge the world now faces from climate change, but which also happens to be the Island’s greatest opportunity, he said.
“Bermuda is already well known as a global thought-leader in the space of risk and insurance, but what we’re after today is to make sure we start and continue to have that conversation around how Bermuda can be a leader for the globe in climate risk finance.
“Bermuda can and does have an impact around the world, and I’m sure that example from 1953 wasn’t the first—and today won’t be the last. This conversation will continue well beyond today, I’m confident of it, and we will continue to share Bermuda’s platform and attributes in this space across the globe with new friends and old partners.”
Just as it was for the COP26 climate talks last year in Scotland, the BDA will be part of Bermuda’s delegation to COP27 in Egypt this November.
“Around that same time, we will also have the second Bermuda Climate Summit and I have a feeling, based on interest in this one, that it’s likely to be twice as big as today’s meeting.”
Government presence
Jim Nadler, president and chief executive officer of Kroll Bond Rating Agency, hosted the keynote fireside chat with Deputy Premier Walter Roban.
“I found it encouraging that the corporate community at COP26 were particularly enthusiastic about the type of investment modelling, the type of strategies, that they could come up with to help bring the capital that the re/insurance industry here can participate in,” Roban said.
“What can be done to raise the trillions of dollars that we know must be pulled together to finance the transition? They were there, working at it. I went to many sessions where finance people talked about what they can do to help small island states, or less developed countries, to make the transition in the appropriate time.
“It is now seen as a good investment to invest in renewables and I found the business community to be great champions of this. There are only 200 or so countries in the world, but there are thousands of non-governmental organisations and thousands of companies who could help us get to where we need to be.”
Turning to Bermuda’s ambition to be the climate risk capital of the world, Roban said: “The talent, the ingenuity, and the innovation are here already so we can and should play that leadership role that we naturally play in risk and insurance as an international business environment.”
“We can’t control Mother Nature, but we can control human nature, and humans are building in places where we shouldn’t be building.”
Pina Albo, Hamilton Insurance Group
CEOs spell out approach to climate
Pina Albo, chief executive officer of Hamilton Insurance Group, told delegates at the Summit that Bermuda re/insurers are equipped to lead the world on climate risk finance but must first examine the opportunity at the macroeconomic and the corporate level.
Albo was on the panel titled “CEOs, Climate and Capacity”, alongside Marc Grandisson, chief executive officer of Arch Capital Group; Lara Mowery, global head of distribution at Guy Carpenter; and Tim Neilander, senior legal adviser at African Risk Capacity Group. The panel was moderated by Jeffrey Manson, head of global public sector partnerships at RenaissanceRe.
“At the macro level, there’s a big opportunity for Bermuda here to put its face on the map, to lead on the topic of climate, how to improve resilience, how to mitigate and underwrite the risk, and how to make statements on how we’re running our business,” Albo said.
“At the corporate level, as a service industry, we don’t produce a lot of carbon dioxide, we are insurers and reinsurers. However, it still doesn’t stop you from taking a look at what you do, and how you can improve your carbon footprint.”
At the same time, the industry can look for indirect ways to reduce carbon emissions, she said.
“For that, we have two levers: our underwriting and our investments. On the underwriting side, what risks do we write? Should we be writing them? And how should we be writing them? That’s one aspect. But, more importantly, I look at what risks we should be targeting to write.
“There’s an increased emphasis and a real opportunity in more sustainable and green technology. On the investment side, making sure that your investments make a statement is important,” she explained.
A lot of the innovation required in climate risk is going to happen through partnerships, she said, and highlighted MIT University’s programme that sponsors innovative startups, including insurtechs.
“We can’t control Mother Nature, but we can control human nature, and humans are building in places where we shouldn’t be building,” Albo said, adding that re/insurers should work with community initiatives that aim to prevent damage “before disaster strikes”.
How to engage
Mowery said that innovation presented the industry with a question: how to get reinsurers to engage and dedicate capacity to climate protection when climate change increases volatility in results?
“We’re dealing with catastrophe modelling and financial modelling, and the volatility of climate itself, even without climate change. But the better the risk framework you can put around these things as they’re evolving and developing, the more comfortable capital is going to be, to say: ‘I’m going take that chance, and I’m going to invest in the space’,” she said.
It is crucial, she added, that the policyholder and even the insurance company understand whether the coverage being offered meets their specific needs at that point in time. Part of this is ensuring policy language is clear and up to date, and not left unchanged as it rolls forward, year after year.
Experience of the COVID-19 pandemic had shown, she said, that incorrect assumptions about coverage could lead to thousands of lawsuits. Parametrics have been around for a long time so can’t be described as an innovation, she said, but they are a potential solution to simplifying coverage.
“Bermuda is always open for business. We’ll try and find a way to make it work the best we can.”
Marc Grandisson, Arch Capital Group
Regulate to innovate
Neilander highlighted the support of the Bermuda Monetary Authority (BMA). The African Risk Capacity Group set up a hybrid mutual insurance company—ARC Insurance Company—in Bermuda, in 2013, to serve 35 African Union member states. ARC chose Bermuda over Switzerland, he stressed, in its search for a jurisdiction with a regulatory environment suitable for issuing insurance policies to sovereigns.
“They did a massive study of all of Africa, then bumped on to Switzerland, the UK, the US and finally settled on Bermuda as a friendly, innovative, creative place.”
Grandisson said Bermuda continues to thrive from innovation.
“We still have this entrepreneurial, innovative spirit in Bermuda, which I think is very important. It tells whoever wants to cede or share risk, that Bermuda is always open for business. We’ll try and find a way to make it work the best we can,” he said.
“This is a place where new things can evolve and happen, and that is largely due not only to the BMA, which provides a great regulatory framework, but to the people.”
Cat loss could soar
Karen Clark, founder and chief executive officer of Karen Clark and Co, illustrated the scale of the challenge.
Based on today’s property values and climate science, catastrophe modelling indicates an average insured loss from global weather-related perils of $100 billion a year, she told delegates.
Cat modelling is a “global standard” technology for estimating the risk of extreme events,
Normally they are from natural hazards such as hurricanes, floods, earthquakes, and weather-related perils “definitely dominate”. Catastrophe modellers estimate the financial impact by taking the latest science and building that into their models, not only for today’s risks but also for future projections, she said.
“The models give insurers and reinsurers estimates of how likely they are to have a $100-million loss, a billion-dollar loss, a multiple-billion-dollar loss. It’s vital for pricing the risk, underwriting and of course for transferring risk between insurers and reinsurers,” Clark told delegates at the Summit.
“In the early days, life was easy because insurance policies are one year in length and, as the job of the catastrophe modeller was to estimate losses for the current year, and because the hazards didn’t change that much from year to year, models didn’t have to be updated that frequently.
“But now, with climate risk and climate change, that’s all changing. As a catastrophe modelling industry, we now need to be on top of not just what’s happening with property exposures, but also of what’s happening with the climate,” she explained.
Clark spoke on the panel titled “Observations from the cutting edge of climate developments”, alongside William Curry, president and chief executive officer of the Bermuda Institute of Ocean Sciences; Mark Guishard, director of the Bermuda Weather Service; Peter Schlosser, vice president and vice provost of Global Futures; and Julie Ann Wrigley of the Global Futures Laboratory at Arizona State University. It was moderated by Steven Weinstein of the BDA.
Clark told them: “No year is ‘average’. Fortunately though, most years are below average, but why is $100 billion the average? Because that number needs to take into account the bad news, like the $150 billion loss we’re going to have when a cat 4 or cat 5 hits Miami. A bad year now is when we have multiple $30 billion hurricane losses in the US, and a bad year is going to be more like $250 billion.”
Referring to the global protection gap, she said that insurance covers less than 50 percent of property damage from catastrophes worldwide.
“The ‘bad year’ for all property damage is going to be about half a trillion dollars,” she said, “and that’s based on today’s climate.”
