From: Captive International

How can the captive insurance industry adapt to the developing impact of climate change and adopt measures to mitigate impact to their shareholders, themselves, and the natural environment? Anna Pereira of SRS Bermuda investigates.

One can separate the green equation for captives into three distinct but overlapping areas: the underwriting portfolio; the investment portfolio; and corporate governance.

There is an assumption that most captives are used for non-catastrophic and more predictable risks that are lower in severity and higher in frequency. This is not the case for all industries and sectors. During hard market cycles, captives are used to provide cover for just about every imaginable class of business, especially those that are not readily available in the commercial markets.

Captives are important for risk finance. Over time, the build-up of excess surplus on a captive’s balance sheet can fund potential catastrophic risk which will assist with liquidity and buffer the impact of funding uncertainty when it’s most useful, thus creating economic resilience to unforeseen catastrophes.

There is an argument that the essence of an insurance product—providing support at a time of heightened financial stress, thereby increasing resilience and sustainability—places insurance firmly in the positive realm of environmental, social and corporate governance (ESG) issues. But does that follow regardless of the type of risk being covered? Does a product that provides an indemnity on say a ‘new for old’ basis truly support a drive for a greener ecosystem?