News that Munich Re is pulling away from cover for new oil and gas developments from next April has been met with dismay from African insurers and reinsurers, who worry the development will leave them with less palatable choices.
However, the news has been welcomed by activists who had been putting pressure on major players to withdraw support for the fossil fuel sectors.
The decision highlights the challenge facing the continent between developing local economies and providing power to all citizens, while also trying to meet environmental concerns about climate change, with Africa set to be the worst affected by climate change.
Many African insurers are encouraging transition to more renewable power sources but with no African country able to provide power to more than 95% of its population, the infrastructure is far from developed enough.
In Africa, many oil and gas projects are only just opening up, giving local economies an enormous boost. Insurers question why the reinsurer is not considering the social in ESG as well as the environmental.
They are pointing to projects such as those in Mozambique and Tanzania as well as plans for the new pipeline between Namibia and Zambia.
Back in July, The Brief was reporting that Namibia was set to collect 55% of all revenues to be generated from oil through taxes.
Research conducted by investment advisory firm Cirrus Capital revealed that the country has the potential to generate more than NGN$500bn in revenue in the coming decade through taxes and royalties from the oil sector.
“The model of the royalties and additional tax shows that we are going to get up to 55% of the revenue and on top of that, you also get the reward on the 10% should there be profit made. Therefore, one does not only get benefits from ownership but also the economic impacts from sources other than the reward,” said Mines and Energy Minister Tom Alweendo.
He added that Namibia will also get additional income from the National Petroleum Corporation of Namibia’s (NAMCOR) 10% interest held in the recent oil finds.
In a statement, Munich Re said: “As an environmentally conscientious business, Munich Re aims to play its part in meeting the targets of the Paris Climate Agreement. The group has therefore set itself ambitious decarbonisation targets for its investments, its (re)insurance transactions and its own business operations.
“Against this backdrop, as of 1 April 2023 Munich Re will no longer invest in or insure contracts/projects exclusively covering the planning, financing, construction or operation of
- New oil and gas fields, where as at 31 December 2022 no prior production has taken place or
- New midstream infrastructure related to oil, which have not yet been under construction or operation as at 31 December 2022 and
- New oil-fired power plants, which have not yet been under construction or operation as at 31 December 2022.”
It continued by saying the new approach will apply “to direct illiquid investments, our primary, facultative and direct (re)insurance business”, adding: “The same applies where such risks are contained or bundled in one cover together with other risks (eg existing oil or gas fields), when the cover is mainly designed to protect one or more of such new risks.
“Furthermore, in its own listed equities & corporates portfolio, as of 1 April 2023, Munich Re will cease to conduct new direct investments in pure-play oil and gas companies. As of 1 January 2025, Munich Re will require a credible commitment to net-zero greenhouse gas emissions by 2050 including corresponding short- and mid-term milestones from listed integrated O&G companies with the highest relative and absolute emissions.”
Isobel Tarr, a campaigner at Coal Action network, said: “Munich Re’s commitment to stop underwriting oil and gas should demonstrate to the insurance industry that it is possible to align their business with climate science. Alongside climate impacts, fossil fuel extraction results in direct human rights impacts; for example the East Africa Crude Oil Pipeline (EACOP) has caused the displacement of nearly 118,000 people and is reputed to be seeking reinsurance cover via Lloyd’s of London.”
Maya Mailer, Mothers Rise Up, said: “We welcome Munich Re’s commitment to stop underwriting oil and gas from its syndicate at Lloyd’s. It sends a critical message to all the other Lloyd’s syndicates that insurance companies cannot enable new fossil fuel projects as climate breakdown accelerates before our eyes.”
Munich Re’s new policy follows those of other leading global reinsurers Swiss Re and Hannover Re, which were published earlier this year. SCOR, the world’s fifth largest reinsurer has also taken steps to stop insuring new oil projects but is significantly behind the others in the depth and breadth of its policy.
However, according to several African insurance market specialists, the move will not necessarily help with environmental damage. As one told Africa Ahead: “We will find insurance elsewhere: China or Russia and that may mean less attention is paid to local environmental concerns.”
Another suggested the move should drive the Africans for Africa agenda and called on local players to work together to develop sufficient capacity for African entities to carry the risks. They also suggested it was time for more pools and for more government support for local African insurance interests.