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Managing Risk in a Carbon Constrained World

Managing Risk in a Carbon Constrained World. Presentation of Christian Mumenthaler, Chief Risk Officer, Swiss Re Ruschlikon, Switzerland 5 November 04. Agenda. Swiss Re Our Strengths The risk of climate change Awareness of Risks What does the Loss Data Reveal?

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Managing Risk in a Carbon Constrained World

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  1. Managing Risk in a Carbon Constrained World Presentation of Christian Mumenthaler, Chief Risk Officer, Swiss Re Ruschlikon, Switzerland 5 November 04

  2. Agenda • Swiss Re • Our Strengths • The risk of climate change • Awareness of Risks • What does the Loss Data Reveal? • Why should the Insurance Industry Care? • What is Swiss Re doing? - Working towards solutions • Research and Development • Raising Awareness • Sustainability is a Core Value • New Products and Services – the facilitation of GHG emissions reductions

  3. Swiss Re • Founded in 1863, Zurich, Switzerland • Operating in 70 offices in 30 countries • Approximately 8,000 employees • In assets, CHF 185 billion (June 30, 2004) • In revenues, CHF 36 billion in 2003 • World’s second largest reinsurer overall • Largest Life & Health reinsurer • Second largest P&C reinsurer

  4. Geographical Diversification Origin of free traded reinsured risks 2003 55% 35% 10% Swiss Re’s gross premium written by regions 2003 51% 40% 9% Source: Swiss Re, Economic Research and Consulting; Swiss Re Annual Report 2003

  5. Reinsurance - We are at the end of the risk chain! • Many of the world‘s risk end up on our balance sheet • Monitoring the risk landscape is one of our core activities

  6. Climate Change is in evidence – observed warming • Temperature increase of 0.6° C – the fastest rise in 1000 years • Atmospheric concentration of CO2 rising since 1750 sigma No. 1/2004 Natural catastrophes and man-made disasters in 2003

  7. If you don’t believe figures, you may believe pictures 1870 Rhone Glacier, Wallis, Switzerland 1999

  8. Swiss Re Sigma 2003 What does loss data reveal?

  9. Extreme weather events expected to increase in frequency Projected changes during the 21st century in extreme climate phenomena Likelihood Higher maximum temperatures and more hot days over nearly all land areas Very likely Increased summer continental drying and Likely, over most mid- latitude associated risk of drought continental interiors More intense precipitation events Very likely, over many areas Increase in tropical cyclone peak wind intensities Likely, over some areas Increased intensity of mid-latitude storms Little agreement between current models Very likely : 90–99% chance Likely: 66–90% chance Source: IPCC Third Assessment Report – Climate change 2001 Source: Swiss Re, sigma No. 1/2004

  10. What is Swiss Re doing? -Working towards solutions • Research and Development • Raising Awareness • Sustainability is a Core Value • New Products and Services – the facilitation of GHG emissions reductions

  11. Research and Development:Climate change futures project

  12. Swiss Re tries to raise awareness • Global warming: element of risk (1994) • Climate research does not remove the uncertainty – Coping with the risks of climate change (1998) • Opportunities and risks of climate change (2002) • Water availability (2002) • The Insurability of Ecological Damage (2003) • Wind/flood Japan – in search of sustainability (2003) • Large Dams (2003) • Tackling climate change (2004) Long-established and proven expertise Extensive research and focused innovation

  13. Sustainability is a core value • Executive Board “Top Topic” • Reflected in: • Our buildings and operations • Our interaction with government/regulators • Events – this is our 4th GHG event in Ruschlikon • Reducing our own environmental footprint • ‘’Greenhouse Neutral” Swiss Re Pledge • 10 years • 15% internal emissions reductions; • 85% offset via the World Bank Community Development Carbon Fund (CDCF) which supports projects in least developed countries

  14. New products and services:Swiss Re and the GHG emissions market • Greenhouse Gas Risk Solutions • Developing financial tools to mitigate/hedge market and performance risks • Third Party Asset Management/investment related solutions • Renewable/alternative energy (reinsurance/structured finance • wind, geothermal etc. • Clearing and delivery guaranty insurance • Evolutionary: Development ecosystem services markets • Footprint neutral products – consumer/company offsets • Collaborative effort with the UNDP, The Nature Conservancy and Conservation International to be launched in January 05 • GHG Emissions reductions market development • Risk assessment and management

  15. Linking Climate Change to corporate governance • Climate as a corporate board risk management issue • Preparation for the impacts of climate change? • Reporting - “material events and uncertainties”; Sarbanes-Oxley • Carbon Disclosure Project (institutional investors representing ca. USD $9 trillion in assets) In 2003: • 80% Global 500 CEOs acknowledge risk; 35-40% acting • Shareholder resolutions • In 2003 - 32% at Chevron, 22% at Exxon, 27% at AEP etc. • For 2004; >25 in energy, utilities, automotive sector as well as the insurance industry • Implications for D&O insurance • Non-action potentially affects shareholder value • Swiss Re policy (upon policy renewal): • Check response of company to CDP; • If inadequate/non-responsive – send questionnaire • Goals: Raising awareness and evaluation of underwriting exposure

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