In March 2022, Hannover Re, the world\u2019s third largest reinsurer (1), became the first of its industry to rule out its facultative reinsurance (2) and direct insurance products to new upstream oil and gas projects. Additionally, the German reinsurer will also exclude certain midstream oil and gas projects. It comes a year after the International Energy Agency (IEA) stated in its Net Zero Emissions scenario (3) that \u201cbeyond\u00a0 projects\u00a0 already\u00a0 committed\u00a0 as\u00a0 of\u00a0 2021,\u00a0 there\u00a0 are\u00a0 no\u00a0 new\u00a0 oil\u00a0 and\u00a0 gas\u00a0 fields\u201d in their pathway to carbon neutrality by 2050. However, these major steps only apply to a small part of Hannover Re’s underwriting portfolio. The German reinsurer must now quickly extend the scope of its oil and gas policy to its reinsurance treaties.<\/strong><\/p>\n<\/div><\/div><\/div> Hannover Re sets exclusions for new upstream oil and gas projects and their related midstream infrastructure<\/b><\/p>\n By mid-2022, Hannover Re will exclude from its facultative division new upstream oil and gas projects. Coming into force mid-2022, these new measures will apply to all types of oil and gas, both conventional and unconventional (4).<\/p>\n Hannover Re will also refuse to provide facultative reinsurance products to midstream projects\u00a0 which \u201cexclusively support the transportation and storage (midstream) of new oil and gas reserves (greenfield)\u201d.<\/p>\n The German reinsurer specifies its unconventional exclusions for 2 unconventional oil and gas sectors<\/b><\/p>\n Hannover Re complements its new oil and gas restrictions by specifying that it will not underwrite any new risks related to new and current oil and gas projects located in the Arctic (5). It will also refuse to underwrite risks related to the development of new oil and gas reserves in ultra deep waters below 5000 ft (1,500m).<\/p>\n<\/div> <\/i>THE POSITIVES<\/strong> <\/i>NEXT STEPS<\/strong> Moreover, Hannover Re defines the Arctic territory as territories up the 66.34\u00b0 latitude, including the Arctic National Wildlife Refuge. This definition of the Arctic must be a first step towards a broader definition of the Arctic Region defined by the Arctic Monitoring and Assessment Programme (AMAP)(10). <\/p>\n According to our research in September 2021, 28% of Arctic oil and gas fields were located outside of the Arctic Circle<\/a><\/span> meaning that existing fields in this Arctic area could still be covered by Hannover Re\u2019s facultative division.<\/p>\n<\/li>\n<\/ul>\n Reclaim Finance welcomes Hannover Re\u2019s new oil and gas underwriting guidelines which becomes the first example of reinsurer refusing to cover new upstream oil and gas projects in line with its net zero commitment by 2050. Hannover Re must now extend its oil and gas policy to its treaty reinsurance business.<\/p>\n<\/div> For more information regarding Hannover\u2019s sectoral policies on coal and oil & gas, you can refer to the following tools : the Coal Policy tool<\/a><\/span> and the Oil and Gas Policy Tracker<\/a><\/span><\/p>\n<\/div>Key updates of the policy<\/h1><\/span>
Our analysis<\/h1><\/span>
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\n<\/b>By becoming the first reinsurer to stop covering new upstream oil and gas projects, Hannover Re paves the way for the reinsurance industry to exit new upstream oil and gas projects. It is the first reinsurer to take into account IEA\u2019s recommendations from the Net Zero Emissions scenario in its oil and gas underwriting restrictions.<\/li>\n<\/ul>\n\n
\n<\/b>Besides its oil and gas underwriting exclusions applying to new upstream oil and gas projects and their related midstream infrastructure, Hannover Re will not underwrite new risks connected with both existing and new oil and gas extraction projects in the Arctic area.<\/li>\n<\/ul>\n<\/div>
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\n<\/b>Even though Hannover Re refuses to provide facultative reinsurance (7) for new upstream oil and gas projects, it can still support oil and gas expansionists through its treaty reinsurance which represents the bulk of its reinsurance portfolio. Indeed, Hannover Re can still provide treaty reinsurance products to ceding insurers which cover companies planning new upstream oil and gas projects.<\/li>\n<\/ul>\n\n
\n<\/b>Hannover Re currently refuses to provide cover (treaty reinsurance excluded) for companies whose 20% or more of their reserves are tar sands reserves. Reclaim Finance advises financial players to use the Global Oil and Gas Exit List (8) which relies on production metrics rather than reserves (9) that is subject to more volatility for the following reasons : the amount of estimated reserves depends on several drivers such as the economic or political environment, the availability and price of technologies or oil and gas prices. This volatility does not allow to assess properly the impact of this exclusion threshold overtime.<\/p>\n