Greenhouse Gas Emissions and the Financial Stability of Insurance Companies

The recent losses and damages due to climate change have destabilized the insurance industry. As global warming is one of the most critical aspects of climate change, it is essential to investigate the extent to which greenhouse gas emissions affect the financial stability of insurers. Insurers do not typically emit substantial greenhouse gases directly, while their underwriting and investment activities play a substantial role in enabling companies that do. This article uses panel data regressions to analyze companies in all segments of insurance and from all geographic regions in the world from 2004 to 2023. The main finding is that insurers who increase their greenhouse gas emissions become financially unstable. This result is consistent across all three scopes (scope 1, scope 2, and scope 3) of emissions. Furthermore, the findings reveal that this impact is related to reserves and reinsurance. Specifically, reserves increase with greenhouse gas emissions, while premiums ceded to reinsurers decline. Thus, high-polluting insurers retain a significant share of carbon risk, eventually becoming financially weak. The results encourage several policy recommendations, highlighting the need for instruments that improve the assessment and disclosure of insurers’ carbon footprints. This is crucial to achieving environmental targets and enhancing the stability of both the insurance market and the economic system.