Climate-related Financial Disclosure (vis-à-vis TCFD recommendations)

The MS & AD Insurance Group is tackling climate changes mitigation and adaptation as one of the social issues to achieve a “Resilient and Sustainable Society”.
In June 2017, The Task Force on Climate-related Financial Disclosures (TCFD) released its Final Recommendations constituting a framework for companies and other organizations to voluntarily disclose climate-related information.
MS&AD Holdings will disclose information on climate-related efforts in line with these Recommendations.

Governance: Climate-related Internal Control

Major issues related to climate are discussed and decided by the Board of Directors.
The Board of Directors discusses and decides on major issues such as policies, strategies, and capital measures, including climate-related ones and initiatives, and oversees the execution of operations by directors and executive officers. The Group Management Committee deliberates on such as policies and strategies, including climate-related issues and initiatives, and monitors the execution of those operations by executive officers. Information on climate-related issues and the progress being made in climate-related initiatives is reported primarily to the Board of Directors and the Group Management Committee after discussions by the Sustainability Committee and the Risk Management Committee (respectively four times annually as a rule).

 

Strategy: Climate-related Risks and Opportunities

While maintaining financial soundness and steady profits, our Group will cover damages caused by typhoons, floods or other climate-related natural disasters, and provide consulting on disaster preparation globally.

<Climate-related risks>
Typhoons and other natural disasters occasionally cause enormous damage, and it is possible that natural disasters will increase in both frequency and size globally as a consequence of climate change, leading to huge natural disasters that exceed previous forecasts. Our Group utilizes reinsurance and allocates catastrophe reserves in preparation for covering damage due to natural disasters, but ever-larger claim payments could pose a risk to our performance. We thus take into consideration the impact of climate change while controlling(*) the retained amount of natural catastrophe risk to secure we have the capital necessary to maintain our financial soundness.
To prepare against frequent natural disasters and to be able to pay out claims promptly to customers who have suffered losses, we have strengthened our claim submission system and have built up intra-Group cooperation in retention of loss adjusters and running of survey offices.

Our Group recognizes that climate change can have impacts such as the following, in addition to natural disasters:
・Changes in weather conditions such as low rainfall, drought, etc.
・Strict environmental regulations and technological innovations to mitigate the impacts of climate change
・Increases in environmental litigations

We monitor the effects on our Group's business by these risks other than natural disasters and utilize for business strategies. We are also engaged in dialogues with companies in our investment portfolio regarding the impacts of climate-related risks on business activities.

(*) Controlling the retained amount of natural catastrophe risk
We utilize statistical methods to quantitatively assess risk exposure by region and by type of disaster while taking the impacts of climate change into consideration. Based on these assessments, we strive to make reinsurance arrangements, issue catastrophe bonds, and allocate catastrophe reserves with appropriate underwriting. These steps are aimed at improving the entire Group’s financial and reducing the risk of profit soundress fluctuations.
More specifically, we are promoting initiatives such as the following.
(1)Natural disaster risk management
・We have established net retention standards (guidelines) for each Group company pertaining to wind/flood damage risk in Japan and in the US, setting the risk of covered events occurring one-in-200-years as a standard in order to control natural disaster risk retention.
(2)Lower the natural catastrophe retention on a Group-wide basis・Lower the natural catastrophe retention including that for windstorm and floods in the United States Further enhance the profitability of the reinsurance business
(3)Reduce the risk of profit fluctuations
・By enhancing the respective existing reinsurance coverage of Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance for domestic natural catastrophes and creating joint reinsurance treaty coverage shared by the two companies that covers annual aggregate losses, the Group reduces the losses on a once-in-10-years basis by around 20% year on year, decreasing the risk of profit fluctuation

 <Climate-related opportunities>
We have been undertaking efforts aimed at contributing to climate change mitigation/adaptation and creating shared value with society (CSV initiatives).
In addition to providing insurances that cover climate-related damages and offering risk assessment consulting, we are striving to provide insurance and other products/services that promote the widespread use of renewable energies and hydrogen technologies. To help customers prepare better for natural disasters, we are working to disseminate insurance coverages through preparation for floods and earthquake campaign aiming at making our customers better prepared and working to extend coverage.
Furthermore, we are taking part in an industry-academia-government collaboration. For example, we have joined with university researchers in the LaRC-Flood® Project to study flood risk impact assessment. We have also exchanged views with people from various societal backgrounds in a climate change symposium we held entitled “Considering the Next Step toward SDGs with a Focus on Climate Change”. The advanced research and discussions will bring greater sophistication to our Group’s risk management and will be utilized in developing products and services.

Scenario analyses
We are undertaking scenario analyses of the impacts of climate change on business as suggested in the TCFD Recommendations.
We are participating in a pilot project led by the United Nations Environmental Programme Finance Initiative (UNEP FI) to study TCFD disclosures by insurance companies, and developing scenario analysis methods for the insurance business. We have also begun calculating our own carbon footprint and carrying out scenario analyses of our asset management portfolio.
In addition, we have developed stress scenarios that take climate change factors into account in stress tests of the impact of typhoons on the insurance industry.

Risk Management (Risk Assessment and Management)

Our company identifies climate-related risk events in accordance with the MS&AD Insurance Group Risk Management Basic Policy and, assesses the degree of risk control at all Group companies via the ERM cycle and reports to the Risk Management Committee. We are increasing sophistication of risk management by incorporating climate change factors into stress tests. We have also initiated dialogues with companies in our investment portfolios to encourage them to disclose climate-related information.

Metrics and Targets

<Indicators and targets>
The Group has incorporated climate change mitigation/adaptation approaches into its key performance indicators (KPIs). The results of these approaches are being reflected in the performance-based compensation of our company’s internal directors.

<Reductions in CO2 emissions>
In seeking to lower its CO2 emissions, our Group has set FY2009 as the baseline year for calculating emission reduction targets of 30% by 2020 and 70% by 2050.

<Impact of natural disasters on insurance underwriting income>
Natural disasters and other factors can cause insurance underwriting profit fluctuation. Our Group discloses insurance underwriting profits as well as the amounts of claims paid for natural catastrophes and fluctuations of catastrophe reserves.