Insurance Sector and Climate-Related Financial Risks: Unholy Nexus Between Private Equity & Insurance Industry Exacerbates Climate Risk Impacts

The $5 trillion insurance industry finances (insurance premiums are being used to fund climate damaging investments) and in turn is exposed to, risks from climate change. Insurance firms are exposed to climate risks in their underwriting and investments in physical properties, in fossil fuel projects, in emissions intensive industries and projects as well as in multiple other areas. Given low yields on junk bonds, to meet liability obligations it is increasingly teaming up with private equity which finance dirty high emission projects.  The insurance industry and banks are big investors in companies that contribute to climate change. They are now a significant portion of Blackstone’s assets for which it even has a dedicated Blackstone Insurance Solutions group. To earn the float, many firms have been acquiring insurance companies e.g., KKR – Global Atlantic,  Carlyle Group – Fortitude Re, Apollo Global Management – Athene Holding, Blackstone managing parts of AIG portfolios etc. Private equity investments are opaque and long term, and little is known about their private fossil fuel assets financed by insurance money.  

Also, since rating agencies have woefully categorized climate impacts on portfolios many insurance firms are grossly under capitalized against potential future climate related losses. There is very little data from insurers on property claims payouts, claim rates, premium rate increases, rates of non-renewals, claims denial, and systematic regional exits of property insurance markets in climate-impacted areas.

I recommend that insurance companies now beef up their capital structures, optimize their capital and most importantly adjust for potential liabilities. 

Author: Sameer_Jain

Partner. Sameer Jain is founder of FinTech ActiveAllocator.com, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. Prior to this he was Chief Economist & Managing Director at AR Capital. Before that he headed Investment Content & Strategy at UBS Alternative Investments. At UBS, he served as a non-voting member of the Wealth Management Research investment committee, and as a capital allocator was responsible for all illiquid investing including fund manager selection and due diligence across the platform. Prior to UBS he headed product development & investment research at Citigroup Alternative Investments that managed over $75 billion of alternative investments across hedge funds, managed futures, private equity, credit structures, infrastructure and real estate. Here he led a team that developed proprietary models for portfolio strategy and asset allocation with alternative investments, provided investment support and research to pension plans, sovereign wealth funds, endowments as well as internal clients including Citi Private Bank. Before this he was with Cambridge Alternative Investments and SunGard (System Access) where he travelled to over 80 countries for work across Europe, Asia, Middle-East and Africa. He has written over 30 academic and practitioner articles on alternative investments with thousands of downloads at SSRN, presented at over a hundred industry conferences and has coauthored a book, Active Equity Management. Mr. Jain has multiple degrees in engineering, management, public administration and policy and is a graduate of Massachusetts Institute of Technology and Harvard University. He is a recipient of the Alfred Sloan Fellowship and subsequently was a Fellow of Public Policy and Management at the Harvard Kennedy School of Government for a year. He holds Series 7 and 66 securities licenses.

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