German reinsurer Hannover Re has become the third company to leave the Net Zero Insurance Alliance, following Munich Re and Zurich earlier this month. How will NZIA’s shrinking popularity affect insurers’ net zero commitments for their investment portfolios? 

In an email statement on Wednesday, Hannover Re said that “after careful consideration” it has decided to leave the NZIA. The world’s third largest reinsurer did not specify the reason for its withdrawal but stressed it “remains committed to its sustainability strategy, the associated goals and its support for the Paris Agreement, and aims to achieve full climate neutrality by 2050 at the latest”.

Launched in July 2021, the NZIA an UN-convened initiative with insurers committed to transition their underwriting portfolios to net-zero greenhouse gas emissions by 2050.

While rival Munich Re cited antitrust risks as the reason for leaving the NZIA, Swiss primary insurer Zurich said it wanted to focus its resources to help customers with their transition to a net zero economy.

The NZIA told mallowstreet that as a matter of practice, it does not comment on individual actions of its members. However, it referred to a comment it posted on 12 April in relation to antitrust risks: “From the outset the NZIA has been clear that it and its members will comply with applicable laws, rules and regulations, including antitrust. With this in mind, the NZIA has taken concrete actions to advance the net-zero insurance agenda globally and to provide its members with a framework they can use to make independent decisions to establish their own individual net-zero pathways.”

In a commentary written prior to Hannover Re’s announcement, Moody’s Investors said Munich Re’s and Zurich’s withdrawals “bring into focus the legal and competitive obstacles insurers face in coordinating their response to decarbonisation, which could impede insurers’ ability to manage risk related to the carbon intensity of their underwriting portfolios”.

Who is most exposed to antitrust risk?

Moody’s said antitrust risk are heightened for those with material property and casualty re/insurance operations in the US such as Munich Re and Zurich, but “are of less concern outside the US, where authorities in some regions are actively working on adapting antitrust measures to accommodate competitor collaboration on sustainability topics”. 

Despite efforts from these authorities to tackle antitrust risks, Moody’s said the exit of large founding members “risks eroding confidence in the alliance”, which could precipitate further departures, even where US antirust risks are not a material factor. 

The weakening of the alliance is credit negative for the P&C re/insurance sector as a whole, according to Moody’s, because it will result in a less consistent and transparent approach to decarbonising underwriting portfolios. 

But the credit implications for individual firms are mixed. 

Smaller insurers, with fewer resources to devote to complex net zero plans, would likely be more impacted by a weaker alliance, the ratings agency said, while very large firms such as Munich Re and Zurich will continue to pursue robust decarbonisation plans outside the alliance. 

Hannover Re is not a member of the Net-Zero Asset Owner Alliance, the alliance focused on reducing emissions from investment portfolios.

Munich Re and Zurich, who are both members of the NZAOA, told mallowstreet separately they remain active in this initiative, with Munich Re adding that “antitrust risks are lower there”.

Moody’s agreed, saying: “While the NZAOA entails collaboration between members, insurers’ ability to have a material impact on market competition through their investment portfolios to net zero is less complex and benefits less from coordination among competitors than is the case of underwriting portfolios.”