Are Canadian property and casualty insurers playing with fire by investing in and underwriting fossil fuel risks? In a report released on July 10 by the activist investor group Investors for Paris Compliance (I4PC), insurers are criticized for their underwriting and financing activities in the oil and gas industry. 

“By its own admission, climate change is threatening the industry’s business model with increased risk and rising claims, yet it is complicit in increasing this risk via its underwriting of the fossil fuel industry,” the I4PC report states. 

Insurance Portal sought reactions from the insurers mentioned in the report and from the Canadian financial regulatory body. 

Intact's response 

Karine Iskandar, Manager of Public Affairs at Intact Insurance Company, responded to the I4PC report: “We have demonstrated leadership in climate change adaptation. We help build resilient communities and are committed to achieving net-zero emissions across our operations by 2050.” 

“Our net exposure to energy represents 2 per cent of our invested assets,” she added. 

“With our expertise, scale, and resources, we adopted an inclusive and engagement-focused approach to enable our stakeholders to transition to a low-carbon future, including setting an interim target to reduce the carbon intensity of our investment portfolio by at least 40 per cent by 2030,” Iskandar concluded. 

Desjardins' stance 

Chantale Corbeil, spokesperson for the Desjardins Group, emphasized that Desjardins’ coal policy, adopted in 2020, was recognized as the most restrictive by the non-governmental organization Reclaim Finance. 

Desjardins says that “an insurer’s equity funds investment is an activity not limited by geographic presence. Our policy covers all our financing, insurance, and investment activities in Canada and internationally.” 

The financial institution highlights that Canada still has several coal-using companies, particularly in the Maritimes, Saskatchewan, and Alberta, and that Canadian coal exports are growing. 

“We operate in the Canadian economy, which is heavily exposed to the fossil fuel sector. As an investor in energy companies, we can use engaged shareholder leverage to help accelerate the transition,” Desjardins stated. 

By doing so, the institution aims to support client companies “committed to the transition. We maintain relationships with energy sector companies willing to reduce their GHGs, aiming to contribute to an equitable energy transition.” 

With its climate plan, Desjardins aims to achieve a net-zero emission balance by 2040 for its extended operations and for the financing and investment activities of its equity funds in three key carbon-intensive sectors: energy, transportation, and real estate. The same target will be achieved for all sectors by 2050. 

“At the end of 2023, Desjardins’ exposure to the energy sector was 0.6 per cent of our default exposure financing,” the institution underlined. 

TD Bank’s perspective 

A spokesperson for Toronto-Dominion Bank (TD) issued a preliminary statement: “It is important to note that this report contrasts the investment profile of TD Bank Group as a whole with those of insurance companies with more focused mandates, which affects the conclusions drawn.” 

“TD's Climate Action Plan, which serves as the Bank's Transition Plan, outlines our approach to mitigating climate risks, decarbonizing our operations, and the actions we are taking as a financial institution to engage and support our clients as they move forward on their emissions reduction plans,” TD stated. 

“TD Insurance programs include electric vehicle insurance discounts and solar panel protection through homeowner insurance products,” the financial institution added. 

OSFI’s take 

Philip Hasek, Senior Advisor, Media Relations, at the Office of the Superintendent of Financial Institutions (OSFI), noted that the regulatory body is aware of the I4PC report. 

“OSFI approaches climate change through the lens of its legislative mandate as the prudential regulator and supervisor of federally-regulated financial institutions,” he added. 

On March 20, 2024, OSFI published a new version of its Guideline B-15 on Climate Risk Management. Expectations for federally regulated financial institutions now align with International Sustainability Standards Board’s IFRS S2 Climate-related Disclosures. 

OSFI has also introduced new climate risk disclosures to collect standardized emissions and exposure data from federally regulated financial institutions. The new guideline and disclosures will be gradually implemented. 

This will apply to domestic systemically important banks and internationally active insurance groups headquartered in Canada by the end of 2024. For all other regulated institutions, implementation will occur by the end of 2025. 

Fairfax/Northbridge 

Northbridge Insurance referred Insurance Portal’s inquiry to Fairfax Financial Holdings, its parent company. Fairfax did not respond to our request. 

In its Environment, Social & Governance (ESG) Performance Report 2023, Fairfax provided information about its fossil fuel risk exposure. The holding company confirmed Allied World’s involvement in insuring coal-fired power plants. 

Its underwriting guidelines are aligned with the Paris Agreement on climate. Underwriters “will generally not provide coverage on risks related to the construction and operation of new coal-fired plants, to insureds that derive over 30% of their projected revenue from thermal coal mining, or to insureds that generate more than 30% of their energy production from coal, taking into consideration the alternative energy sources available within the respective territory. Any remaining in-force coverage for insureds that do not meet these thresholds will be phased out by 2024 or sooner, or non-renewed,” the company stated. 

Allied World has also limited its exposure to oil sands and Arctic energy exploration, according to Fairfax’s ESG report. 

Furthermore, its Global Market Insurance division has implemented underwriting guidelines for its operations in Europe and Asia-Pacific, aligned with the Paris Agreement’s goals to reduce carbon emissions, increase renewable energy, and enhance energy efficiency. This division represents about 20 per cent of Allied World’s gross written premiums. 

Definity’s approach 

At Definity Financial Corporation, the company’s climate change approach is detailed in its 2023 ESG Report, published on May 13.

The official reaction to the I4PC report is: “Climate change increasingly challenges our company’s resilience and the well-being of our teams, clients, and communities.” 

“We recognize our sector’s role in addressing climate change. Therefore, we continue integrating climate risk factors and opportunities across our company to drive change for a healthier environment, enhancing societal resilience,” Definity added. 

No comment 

Insurance Portal sought reactions from other insurers mentioned in the I4PC report, although their underwriting or investment activities are less significant in the energy sector. 

Co-operators declined our invitation to comment. Wawanesa did not respond to our requests before the article was published. 

In addition to the seven Canadian insurers targeted in the report, other foreign insurers use their Canadian subsidiaries to cover risks or finance the fossil fuel industry. The report cites examples of Chubb, Liberty Mutual, Travelers, and Lloyd’s. 

“Canadian insurers can be a positive force in the energy transition. A hundred years ago, the industry helped with the rollout of electricity, setting standards so that new companies could access underwriting. Such innovation is again needed today to encourage the development of renewable energy and climate solutions,” I4PC highlighted.