Topics 2/2007: Cycle management, Climate neutrality, Kyoto ... · PDF fileCycle management...

TopicsCycle managementClimate neutralityKyoto Multi Risk Policy

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Munich Re, Topics 2/2007 Editorial

Different times – Different gears

That “change is the only constant” was already recognised by the Greek philosopherHeraclitus. This has remained the case until today – the only difference being that changehas gathered momentum. Today more than ever, anyone wishing to benefit from thisdevelopment needs to be flexible, determined, and have a wealth of ideas. This is whyMunich Re launched the growth programme Changing Gear this spring. Our objective: torecognise technological, social and environment-related changes at an early stage, inorder to be able to offer our clients new products and services for them quickly. Togetherwith our clients, we will thus make the most of the changes in the insurance industry.

Take the climate-change debate: today’s hotly discussed megatopic has been on MunichRe’s radar for over 30 years. We assess risks and devise insurance solutions and productsto meet today’s and tomorrow’s requirements (cf. the article beginning on page 38). Butthat is far from enough: the article beginning on page 18 has more on why we have setourselves the objective of making Munich Re climate-neutral and on the measures weintend to use to achieve this goal.

Growth in sustainable investments is the subject of our expert interview, where Dr. Gerhard Wagner, Head of Socially Responsible Investments at major Swiss bank UBS,explains why these are being reassessed on the capital markets and what opportunitiesare arising as a result.

Business development in the insurance industry is sometimes more dynamic than wewould like. Soft market phases in particular, where premiums fall worldwide, pose greatcycle-management challenges for every insurer. We discuss with Thomas Hürlimann from Zurich Financial Services how primary insurers assess the current situation and theexpectations they have of reinsurers (page 6).

Dr. Torsten JeworrekMember of the Board of Management andChairman of the Reinsurance Committee

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Munich Re, Topics 2/2007 Contents

Cycle managementPrecision and discipline are excellent qualities for goodcycle management. The insurance industry currently facesa very challenging time as the market approaches a softerphase.

Hohhot, capital city ofInner Mongolia Province:China's economy isgrowing fast, as is theimportance of renewableenergies.

Market in the danger zoneInterview with Thomas Hürlimann of Zurich FinancialServices and Alfred Gaßner of Munich RePage 6

Keeping on course Active cycle management as a way of reducing volatilityPage 10

Together we can beat the cycle trapA statement by Munich Re Board member Dr. Torsten JeworrekPage 16

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Munich Re, Topics 2/2007 Contents

Kyoto Multi Risk PolicyNew solutions are needed to put a stop to climate change.Munich Re’s Kyoto Multi Risk Policy is designed topromote the transfer of clean technologies to emergingcountries.

Climate neutralityIn just a few years, Munich Re’s entire reinsurance groupwill be climate-neutral. This places us at the very forefrontof developments.

Time to actThe path to climate neutrality – Aims and measuresPage 21

The cold that comes from the deepAn initiative of the Munich Re Centre in Toronto Page 24

Gains on sustainabilityInterview with Gerhard Wagner, head of Socially Responsible Investments at UBS Page 27

Europe’s business culture has changedInterview with Andrei Marcu, President of the InternationalEmissions Trading Association (IETA)Page 32

Three flexible mechanisms – Three currenciesWorkings and special featuresPage 35

Secure basis for emissions tradingMunich Re’s new cover: the Kyoto Multi Risk PolicyPage 38

An innovative cover for a new market segmentA commentary by Munich Re Board member Dr. Thomas BlunckPage 43

Munich Re, Topics 2/2007

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Cycle management

The economy does not move in straight lines.Neither does insurance. In fact, the insuranceindustry’s actions have frequently accentuatedmarket fluctuations rather than mitigate them.Supervisory authorities, investors and ratingagencies impose limits on what insurers can andcannot do. And they are right to do so. Only thosethat assess risks precisely and accurately cancreate sustained value. Navigating the insurancecycle is a fine art which requires detailed monitor-ing, sophisticated pricing tools, iron disciplineand flexible capital management.

Well set up: The more preciselydominoes are arranged, the less likelythey will be to fall down. Disciplineand precision are also the key tosuccessful cycle management.

Munich Re, Topics 2/2007 Cycle management

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Market in the danger zone

Insurance and reinsurance cycles are closely interlinked.Thomas Hürlimann from Zurich Financial Services Group(Zurich) and Alfred Gaßner from Munich Re discuss thecurrent development of the insurance market, the changesthat the industry has undergone in the last few years, andthe chances of succeeding together in taking the peaks outof the cycle.

Interview with Thomas Hürlimann and Alfred Gaßner

Topics: After a moderate claims year, there are indicationsthat the insurance market is moving towards a soft phase.What point in the cycle have we reached?

Thomas Hürlimann: It’s certainly no secret that prices arefalling worldwide, especially in the USA. In the first fewmonths of the year, US liability business in particular cameunder pressure, but we’re also seeing signs of this trend inproperty. It’s happening in the UK, too, but not to the sameextent. Historically, trends in these two markets havealways been slightly ahead of those in Continental Europe.My view of the global market for industrial insurance as a whole is that, in terms of profitability, the industry isalready in the danger zone.

Alfred Gaßner: Insurance and reinsurance cycles areclosely interlinked and can’t be regarded as separatephenomena. That means we reinsurers are also feeling the pressure – though not to such a pronounced extent as in the past.

Topics: Are the margins still acceptable?

Hürlimann: The industrial insurance market per se is nolonger profitable, in the sense that it no longer earns thecost of capital. But we do, of course, have to differentiatesubstantially here between individual market players. Notevery insurer is affected in the same way, because somecan exploit their individual strengths, depending on thefield of business and geographical positioning. Thanks to“The Zurich Way”, Zurich has increased its efficiency and

lowered its costs, and it has also got a very well-diversifiedportfolio worldwide. This diversification benefit means we have to allocate less capital to some business than amono-liner, for example, which in turn has a positiveimpact on our cost of capital.

Gaßner: But we should bear in mind that, at least in theUSA, we are coming from a comparatively high level. If we look at recent years, prices in the USA increasedsteeply after the hurricanes in 2004 and 2005. Essentially,then, the current market trend hasn’t taken the insuranceindustry completely by surprise. There have always beeninsurance cycles – they’re part of our business. The inter-esting thing is what happens next and how well individualcompanies are able to deal with the situation. I believe that this time we will manage a clear break with the past.

Hürlimann: As I see it, past cycles can’t be compared withthe situation today. We used to have extreme fluctuationsboth upwards and downwards in the industrial segment.There are already signs that we will see less volatility infuture. The pressure from our stakeholders, like investorsand rating agencies, is forcing the whole industry to showgreater discipline. If we deliver a combined ratio of 110%nowadays, i.e. write business where the bottom line is not profitable, this is reflected in our rating. In formerphases of high interest rates, it was easy to compensate for underwriting losses with investment income withoutany negative consequences.

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Gaßner: But even though the stock market is rising, theinsurance industry isn’t benefiting from this as much as itdid ten years ago, because its percentage of investments inequities has fallen significantly.

Topics: What role does supervision play in connection withthe present discipline?

Gaßner: Supervision is becoming more professionalworldwide. Also, the new accounting regulations –whether IFRS or US GAAP – have made things much moretransparent. You used to be able to cushion or exploit thecycle under German GAAP by releasing or accumulatinghidden reserves, for example. And with Solvency II, trans-parency will increase further. The external pressure – ordiscipline, if you like – with regard to technical results ismuch greater nowadays than in the past. That’s positive

for the insurance cycle. In other words, cycles should beshorter and less pronounced than before.

Hürlimann: Besides rating agencies, auditors, investorsand supervisors, there is another very crucial external fac-tor from the primary insurer’s point of view: reinsurers.They have kept their prices relatively stable for aroundthree years. The industry wasn’t able to muster such dis-cipline in past cycles. Of course, reinsurance prices arefalling as well, but there is no comparison with how it usedto be. As a result, the difference between primary insur-ance and reinsurance prices is growing. So primary insur-ers that want to use reinsurance to compensate for a lackof equity capital are finding themselves in more and moreof a squeeze. Primary insurers with sufficient equity cap-ital, like Zurich, optimise this difference by simply retainingmore risk. But if reinsurers were to yield now, it could startan avalanche.

Gaßner: That’s right. This situation, with reinsurers keep-ing their prices relatively stable while primary insurers findthemselves entering a softer phase of the cycle, is morepronounced than in the past. Formerly, reinsurers wentalong with the cycle, maybe even amplifying it as a result,until the pain threshold was reached. But then we werealso the first to call a halt and initiate an upswing in theprimary insurance market through higher reinsuranceprices.

Past cycles can’t be compared withthe situation today. Thomas Hürlimann

Thomas Hürlimann

Thomas Hürlimann has been CEO of Zurich GlobalCorporate in Europe since 2006. Before he joined Zurich as Head of Group Reinsurance in 2003, he held variousleading positions at Swiss Re. During his career, the 44-year-old Swiss has gained international experience inCentral and Eastern Europe, North and South America,Southeast Asia and West Africa. He holds a degree inbusiness management from the University of Zurich and an MBA.


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Topics: Is today’s discipline solely the result of externalfactors? Is the insurance industry ultimately just beingdriven?

Hürlimann: No, I wouldn’t go as far as that. Nowadays wehave sophisticated tools and internal models for determin-ing very precisely how an individual risk or a whole port-folio should be assessed. Because we have invested agreat deal in pricing tools and actuarial considerations, we can measure every risk and every portfolio against thetechnically necessary price and judge exactly where westand. Precision and transparency are in a different dimen-sion than they used to be. This detailed and disciplinedapproach is crucial, especially in a softer market phase. It supports us in deciding how far we can accommodateclients.

Gaßner: The insurance industry is very complex and it canonly influence many variables to a limited extent. There-fore we need to respond quickly and, if possible, pro-actively. In the past, before cycle management was around,reinsurers went with the flow for a time and only graduallytook countermeasures. Today, we detach ourselves com-pletely in our pricing from the original terms and condi-tions. We calculate our own prices, regardless of the pri-mary insurer’s rates, and try to manage the cycle. Thisdidn’t happen quite so explicitly before.

Topics: How do you think the cycle will develop from here?

Hürlimann: In view of Solvency II, the whole industry isgiving a great deal of thought to which risks it writes andwhich it doesn’t – insurance is a long-term business. Unlikepreviously, the distribution of risk-based capital is alsobeing looked at very carefully. All these factors and a firm

wish to maintain discipline give us cause for hope that thecycle will be less pronounced than it used to be. On theother hand, if we look at the impact of the investment sideon the cycle, you could say that the pain is still too small.

Topics: What pain?

Hürlimann: The financial pain. The financial pressure fromthe investment side on the cycle still isn’t great enough,because the industry is still posting profits even though it’sno longer earning the cost of capital per se.

Topics: Might this tempt players into being careless?

Hürlimann: That’s a big danger, which is why a proactiveapproach by management is so important. As things standat present, one major loss event alone wouldn’t be enoughto trigger a turnaround. It would have to be accompaniedby a significant deterioration in the capital market environ-ment. Nevertheless, I believe that – given past experience –the pain threshold would be reached earlier than in thepast. Of course, this entails a certain degree of optimismand we can only be really sure once we have actuallyturned the corner. In past cycles, we had to cope with mag-nitudes of plus or minus 40 per cent in premiums. Now wehope that this range will be smaller. I don’t want to ventureany hypotheses as to how far the market will fall, but I thinkit might take longer before things reach the turning point.

Gaßner: One variation might be that although prices don’tfall as far as in the past, the whole process may be moredrawn out, until finally a severe loss event triggers theturnaround in the cycle. But given that the pressure fromthe capital markets kicks in earlier and more strongly thanit used to, so that the pain threshold is reached more

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quickly, isn’t it conceivable that the cycle will be shorterand less pronounced – for example, because a majormarket player says that it is no longer earning its cost ofcapital and therefore increases its prices, and the othersfollow?

Hürlimann: That may be the case for individual areas, butexperience shows that to date it has always needed anexternal trigger in the form a severe loss event to start theturnaround. But what will also be crucial for the duration ofthe cycle is how long reinsurers stay firm and at what pointthe pressure from the capital markets forces a rethink.Winter Storm Kyrill, for example, was too weak as a singleevent to initiate the turnaround but was just sufficient tostabilise reinsurers’ discipline. It had less of an impact onthe primary insurance market, especially the industrial sec-tor. My logic tells me that the amplitude of the cycle will besmaller and all the facts point to that. But in the USA, pre-miums are falling more than in Europe, and we can’t sayyet whether that market’s lead function will again assertitself. It’s unlikely that the cycle will disappear altogether.But even if it just loses intensity, the whole industry wouldprofit, because the smaller the volatility, the lower thereturn expectations of investors and the lower the cost ofcapital for all market players.

Topics: But don’t the risk models called for under Solvency II and also by rating agencies already implysmaller amplitudes and more discipline?

Hürlimann: Yes, I think so, but we have to wait and see towhat extent.

Gaßner: You mentioned reinsurers’ discipline. On the one hand, it benefits the whole insurance industry as astabilising factor; on the other, it is in primary insurers’interest to negotiate the best possible conditions for theirreinsurance. What expectations does Zurich have of itsreinsurers?

Hürlimann: Quite simply, we want to have strong, disci-plined reinsurers, because we want long-term partner-ships. And as we have departed from the proportional rela-tionship – the “following of fortunes“ that had evolvedover decades – both parties can act more freely. This natur-ally triggers a certain optimisation mentality in both part-ners. On this note, a word about Zurich’s cycle manage-ment. We have signalled to the market very clearly that wealso intend to grow profitably in this market environment.But internally we have made a clear distinction betweenbusiness units where we focus on growth and units whereour emphasis is on margin improvement. That, for us, is aproactive approach – where do we stand in the market andwhat is the return expectation? It’s not about writing newbusiness at any price.

Gaßner: And if need be, we also have to take strictmeasures and give up market share.

Hürlimann: Zurich will certainly withdraw capacity fromthe market as soon as we reach a point where we cannotearn our cost of capital. On this point, there is absolutelyno difference between our approach, our considerations,and those of a company like Munich Re. The objective is toachieve an adequate return for our shareholders over thecycle. And my own personal objective is for Zurich toemerge from this soft market phase as a winner. In this, I will be helped by a highly motivated team that under-stands precisely where we’re heading. Other requirementsare a great deal of training and mutual trust. I am veryconfident that we will master the challenge.

Alfred Gaßner is Head of Treaty Property 3 for Global Clients. He is a qualified mathematician and is mainly responsible for the Zurich Financial Services Group.

Zurich Financial Services Group

Zurich Financial Services Group (Zurich) is an insurance-based financial services provider, with headquarters inZurich. Its core business comprises general and lifeinsurance. Founded in 1872, Zurich has a global network of subsidiaries and offices in North America, Europe, AsiaPacific, Latin America and other markets. Zurich’s 55,000employees serve customers in more than 150 countries.Zurich was the first insurer in Switzerland to offer globalinsurance programmes. In 1912, it became the firstEuropean insurer in the United States. Over the years,Zurich has extended its reach across the globe and aims to become the leading global insurance group in selectedgeneral and life insurance markets.


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Fluctuations in prices and conditions and – with somedelay – in the profitability of the business written are fun-damental characteristics of our industry. However, this isby no means confined to reinsurers alone: policyholdersand insurers are equally affected, as the examples ofindustrial fire and motor insurance show. As with everyeconomic cycle, fluctuations occur due to imbalances insupply and demand.

Important random factors in this cyclicity are (natural)catastrophes and the negative impact they have on cap-acity. High claims burdens diminish an insurer’s capitalbase and its ability to write risks. Sometimes, and this wascertainly borne out by the experience of Katrina & Co., riskmodelling and risk assessment can be readjusted in thewake of such events, which in turn leads to fluctuations inthe available market capacity, especially capacity that isonly there for opportunistic reasons.

Cycles are not synchronous

Insurers themselves can also trigger fluctuations. Firstly,because a favourable capital market where high invest-ment income can be generated may induce them to writeinferior business and focus on expanding market share – inother words cash flow underwriting. Secondly, the insur-ance industry faces an almost unique problem, namelythat the actual costs of the product “risk protection” only

become evident afterwards. Consequently, the “correct”price is the subject of much uncertainty, which in the pasthas frequently led to errors in pricing and in the capacitiesoffered. The “rear-view-mirror” approach to pricing, inother words pricing based on historical claims experience,has brought systematic errors and even generated acyclical pattern. The consequences of inadequate pricinginvariably take time to come to light and have, for ex-ample, taken the form of reserve strengthening for liabilitybusiness written during soft market phases.

While the influence of underlying parameters such as capi-tal strength tends to extend beyond the confines of theindividual classes of business, market cycles are by nomeans synchronous across all segments. Consequently, an analysis of a cycle at any given time will indicate a verydifferent picture for different regions and/or classes ofbusiness. Broad diversification is therefore advisable, as itensures that the business as a whole is far less susceptibleto fluctuations in individual classes and offers global,broad-based market players a significant competitiveadvantage.

Keeping on course

Cyclicity in property/casualty business is a major challenge forthe insurance industry and choosing the right strategy for therespective price situation is a key factor in ensuring long-termsuccess. Active cycle management on the part of all marketplayers helps to keep business volatility to a minimum.

Vanessa Schonder/Dr. Oliver Büsse

The actual costs of the product “riskprotection” only become evident after-wards. Consequently, the “correct” price is the subject of much uncertainty.

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Developments in insurance market penetration (ratio of premium toGDP) provide some useful pointers to the cycle. An increase in penetra-tion, i.e. if insurance premiums grow at a greater rate than the economyas a whole, is an indicator of a hard market. The graph shows the global

development of aviation and motor business. As the two curves clearlyshow, the cycles for large risks such as airline business, which was heav-ily influenced by September 11, are subject to much greater fluctuationsthan those for mass business (motor).

Mass business subject to fewer cyclical fluctuations Developments in motor and aviation insurance since 1995

1.30

1.20

1.10

1.00

0.90

0.80

0.100

0.080

0.060

0.040

0.020

0.000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Motor (left-hand scale) Aviation/airline business (right-hand scale)

Source: Munich Re

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Car insurance is a classic form ofmass business. Unlike major risks,the premiums here are less proneto major fluctuations.

Market penetration (in %) Market penetration (in ‰)


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Where are we currently at in the reinsurance cycle?

Following a year with relatively low losses (especially asregards natural catastrophes), ensuing good results andfurther strengthening of reinsurers’ capital base, it is notsurprising that prices are coming under pressure. Overall,however, the price level is still acceptable. Nevertheless,the challenges are growing given rising primary insuranceretentions and the current capacity situation, especially asthe price pressure in some markets and segments ofprimary insurance has been quite sustained and is morepronounced than in reinsurance.

However, the current cycle could turn out to be flatter thanthose in the past – thanks mainly to improved pricing tools,professional risk and steering models, active capital man-agement and greater transparency in the sector as a whole.To this can be added the greater expectations of ratingagencies, supervisory authorities and investors, which areforcing reinsurers to show more discipline and bodes wellfor a return to more rational behaviour on the part of mar-ket players in terms of pricing and capacity and, therefore,hopefully less market volatility.

What is successful cycle management?

Active cycle management in reinsurance is founded on twocentral elements: monitoring, i.e. the detailed analysis ofwhere we currently are on the cycle curve, and the devel-opment of a suitable strategy on this basis. This strategy,which is actually what cycle management is all about, musttarget three levels: the company as a whole, operationalmanagement and underwriting/client management.

At corporate level, a successful cycle strategy requiresclearly defined requirements, guidelines and the right sortof incentives for operational management. Effective capitalmanagement is essential to ensure that the appropriatesteering impulses are provided, as it is the available capitalthat determines the level of risk that a reinsurer canassume, i.e. the amount of capacity it offers. A reinsurer

The greater expectations of rating agencies,supervisory authorities and investors areforcing reinsurers to show more discipline.

Not all sales structures are equal

Generally speaking, all insurance companies should actively manage the cycle. However, not all insurers have the sametools to do the job. Their ability to manage the cycle largely depends on the type of sales structure they use. Advantagesand disadvantages of using tied agents vs. brokers:

Insurers with tied agents

– By the terms of their contract, tied agents may only selltheir own company’s products and have to adhere to theunderwriting and acceptance guidelines stipulated by the insurer they work for.

– In soft market phases, tied agents may grant price reduc-tions, but only to the extent that their company permits.Consequently, they may find it more difficult to sell, asthey cannot use terms and conditions offered by otherproviders. However, the very fact that they do not havethe whole range of products available to brokers meansthat the insurer is able to calculate a more risk-adequateprice. But there are limits to this: if business is terminated,there is the risk of losing the client altogether.

– In the highly cycle-dependent field of property-casualtyinsurance, the commission systems are structured in away that enables agents to earn from portfolio mainten-ance. If new business is struggling, agents always havethe renewal commission to fall back on.

– Insurers that use tied agency sales forces find it easier to initiate the next hard phase through rehabilitation andprice increases, because they have little fear of losingtheir entire business.

Insurers using broker sales

– There is no formal connection between brokers andinsurers. Brokers therefore invariably take a very oppor-tunistic approach to representing policyholders’ inter-ests, which among other things enables them to offertheir clients the cheapest insurance cover in any givenmarket phase.

– Insurers can also take an opportunistic approach tobrokers, as they have no obligations or responsibilitytowards them whatsoever.

– Brokers, whose commitment to clients is not based onany long-standing relations with an insurer but on thecheapest offer available at any given time, will also actopportunistically in phases of rising prices and seek out the best price/performance ratio – and change theirprovider at will.

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can only meet its return targets if it deploys capital effect-ively, allocates it on a segment-by-segment basis and with-draws surplus capital when required. On the other hand,flexibility of capital is also needed to profit from risingprices and tight capacity in a hard market. Without ad-equate capital management, therefore, cycle managementis not even possible.

At operational level, a successful cycle strategy requiresconsistent compliance with requirements and above allextensive know-how and experience on the part of under-writers and client managers. Thanks to their industryknowledge, proximity to cedants and understanding ofcurrent market events, underwriters and client managersalso act as “market scouts”. Observations of cyclical mar-ket developments are of major importance for effectivemonitoring. Ultimately, it is the underwriters and clientmanagers who implement the strategy in day-to-dayunderwriting business together with our clients.

Cycle management at Munich Re

At Munich Re, operational cycle management is a vitallyimportant element in all strategic considerations at marketand client level, in planning and monitoring processes andin the training of underwriters and client managers. Thiswhole system is based on a fundamental principle: pricesand conditions must be risk-adequate.

A reinsurer can only meet its return targets if it deploys capital effectively, allocates it ona segment-by-segment basis and withdrawssurplus capital when required.

Comparing reinsurance cycles

If we compare the last soft market with the current situ-ation, they appear to be almost identical at first glance.However, there is one very important difference: reinsurerstoday carry out active capital management in order tomanage their business more effectively.

Last soft market cycle 1997–2001:

Causes: Rising equity, high investment returns, favourableclaims situation.

Capital management: Reinsurers do very little in the wayof active capital management: – Only very few companies have share buy-back

programmes.– Dividend policy: Dividend payouts rise continuously

from a low level.

Acquisitions: Strong acquisition propensity; growth involume is top priority while stock markets are booming.

Current cycle:

Status quo: High equity, favourable capital marketenvironment, favourable claims situation.

Capital management: Reinsurers pursue active capitalmanagement:– Major players have announced share buy-backs totalling

nearly €9bn for the period 2007–2009.– They have also increased their dividend yields in recent

years.

Acquisitions: Takeovers tend to increase.

Little movement: The cycle surveyin spring 2006 expected premiumsin marine insurance to remainfairly constant.

Early identification of trends: “Cycle survey” – An example from 2006Expected price changes in various segments for spring 2007

Twice a year Munich Re conducts a “cycle survey”, in which some 300experts throughout the reinsurance group are asked for their views andexpectations. In order to ensure a high level of detail, the survey coversten different segments. The chart shows the assessments from spring2006 regarding the price expectations for our portfolios in spring 2007.The respondents held the view that higher prices were most likely innatural catastrophe business and least likely in casualty business.

The survey data can be broken down further to analyse more than 25markets/regions (breakdown not shown here). This additional feature ofthe survey not only ensures early identification of trends in individualsegments but also enables us to spot trends in individual markets andregions.

100%

90

80

70

60

50

40

30

20

10

0

Property

Propor-tional

Per-risk XL Accumu-lation XL

Faculta-tive

Propor-tional

Non-proportional

General liability

Faculta-tive

Non-proportional

Propor-tional

Liability and motor Marine

Rising Stable Falling

Source: Munich Re

Cumulated responses (in %)

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Market and client level: We conduct active cycle manage-ment at market level through continuous monitoring of theprimary insurance markets, especially as regards ratedevelopment, conditions, risk standards and underwritingpolicies. This enables us to engage in prompt and effectivedialogue with our clients and to react quickly to currentdevelopments. Cyclical developments in the primary insur-ance markets are of interest to us, too, in that they serve asearly indicators for the reinsurance cycle. Moreover, theprimary insurance cycle also has a more direct effect on usin proportional than in non-proportional reinsurance busi-ness and we have to react to this accordingly.

As regards the reinsurance markets, we analyse and iden-tify problem segments and work hand in hand with ourclients to develop solution strategies for specific cyclephases, as we did recently for industrial fire insurance andmotor insurance in Europe.

Planning and monitoring processes: The secret of success-ful planning is to anticipate the cycle and analyse its poten-tial effects. One of the most important tools in cycle analy-sis is our internal “cycle survey”. Twice a year, around 300experts from the entire reinsurance group are asked togive their views on the current state of the cycle and howthey think it will develop in the future. Thanks to the sizeand range of its operations, Munich Re is able to observeall relevant market trends and obtain a clear picture ofwhere specific markets and classes of business are at anygiven time.

Fluctuation-related influences on our portfolio can thus bepredicted reliably and given due consideration in the plan-ning process. The capital requirements derived from ourplanning process and internal risk model therefore reflectthe current cycle situation (in addition to other factors) andpermit efficient capital management based on currentbusiness opportunities.

The capital requirements form the basis for calculating the main pricing parameters at each respective renewal.Thanks to precise steering tools, we are able to closelymonitor our entire portfolio during the renewal process,observe rate movements in individual markets and evenidentify trends worldwide in our aggregate portfolio. This makes us extremely flexible and enables us to man-age and control our portfolio at every level.

Conclusion

The ability to safely negotiate the perils of the cycle is afundamental prerequisite for lasting success in reinsur-ance. Cycle management and our corresponding strategybased on risk-adequate prices and conditions are thereforeindispensable aspects of our business policy. This beginswith consistent capital management throughout the Groupand culminates in extensive preparation of our under-writers and client managers for the actual challenges theyface. Thanks to broad, global diversification, excellentknow-how, proven financial strength and a reliable, con-sistent approach to cycles, we are in the best possibleposition to achieve our actual objective: creating sustain-able value from the risks in every phase of the cycle for the benefit of our clients and investors.

Vanessa Schonder is a Senior Underwriter in Corporate Underwriting/Cross Line Initiatives. She has a degree in business management andfocuses on cycle management and non-traditional business.Dr. Oliver Büsse is a Senior Economist in Group Development and isresponsible for cycle management and for compiling economic analysesand forecasts of insurance markets.

Thanks to their industry knowledge,proximity to cedants and understanding ofcurrent market events, underwriters andclient managers also act as “market scouts”.


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Together we can beat the cycle trap

The forthcoming renewals will be a litmus test for theinsurance industry. With discussions in recent years revolving around the issue of underwriting discipline, the insurance industry must now prove that it can match its words with action. After all, there are signs that the cycle is entering a softer phase.

Dr. Torsten Jeworrek

The reinsurance industry currently has ample capacity andcapital. It comes as no surprise, therefore, that we areheading towards a soft market phase, particularly sinceprices in individual segments of primary insurance havealready taken a bit of a tumble. Although we may not beable to eliminate cyclical fluctuations entirely, at least we at Munich Re will not intensify the cycle. The insuranceindustry is well advised – in its own interests – to alwaysevaluate underwriting risks from an economic viewpoint.

In addition to being guided by this economic maxim, wealso need to meet the increased requirements of our majorstakeholders, in particular the rating agencies, supervisoryauthorities and investors. Their credo, and rightly so, isgreater transparency and sustainable results. As far astransparency is concerned, the European regulatoryregime under the banner of Solvency II will set new stand-ards in future. Results, by contrast, can be influenced by active cycle management.

Well prepared

At Munich Re, cycle management has an especially im-portant part to play in the current market situation. Itsapproach is a two-pronged one: managing the profitabilityof business volume on the one hand and varying the levelsof risk-based capital on the other hand. Bearing in mind theexperience of the 1990s, we are intent on consistentlygearing our underwriting to economic requirements. Ittakes a great deal of underwriting know-how, sophisticatedpricing tools and professional risk management to ensure

that capacities are allocated to profitable business only.Particularly in volatile segments such as aviation andindustrial business, the rating tools available to under-writers leave considerable scope for assessment. In softmarket phases especially, this scope tends to be stretchedunnecessarily far in the hope that the technical reinsuranceprice will still be adequate. For this reason, Munich Re has opted for a more rigorous approach to identifying andmeasuring risks.

In a soft market environment, this approach may be at thecost of premium volume or market share. But at the end ofthe day, we have to calculate premiums in such a way thatthey consistently cover losses, expenses and costs of capi-tal. This is best achieved through close collaboration withour clients, as they too are subject to cyclical swings andthe same economic constraints. Besides, our important pri-mary insurance partners expect their reinsurers to exercisediscipline as well (see interview with Thomas Hürlimann,Zurich Finance, on pages 6–9).

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Cycle management

However, proper business management alone is notenough. It needs to be backed by flexible capital manage-ment. That is why we at Munich Re systematically returncapital we do not need for profitable reinsurance growth toour investors, thereby underlining our disciplined under-writing practice and ensuring that capital is put to the mostefficient use. In terms of active capital management,Munich Re benefits from the many internal transparencymechanisms we have established in the past. Our capitalmodel takes into account factors such as premiums,reserves, and asset values. It also provides good controlmechanisms for our portfolio.

New solutions for emerging markets

Besides this, we have launched a number of initiativesaimed at identifying new fields of business and generatingfuture growth. We see opportunities especially in segments not yet undersignificant competitive pressure, where Munich Re’s risk-identifying expertise comes into its own. A good exampleof this is the Kyoto Multi Risk Policy for projects designedto reduce emissions (more information on this policy isavailable on pages 38–43). A further source of growth areinsurance solutions based on the principles of Islamic law(Retakaful business).

Joint responsibility

Our growth initiatives are also founded on the principle ofvalue-based management. Every investment must yield asustained risk-adequate return. Munich Re has thus intern-ally put things in place to meet the demands that marketplayers and stakeholders make of our industry. The chal-lenge we now face is to manage the cycle properly. If theindustry acts in a disciplined manner, there is a goodchance that the current downswing of the cycle will be lesspronounced than those in the past. The strategy pursuedby the major insurance players indicates that companieshave learnt from past errors – after all, the painful mem-ories of the last soft market cycle are still fresh.

Dr. Torsten Jeworrek is a member of the Board of Management and the Chairman of the Reinsurance Committee of Munich Re.

If the industry acts in a disciplinedmanner, there is a good chance that thecurrent downswing of the cycle will beless pronounced than those in the past.

Munich Re is going climate-neutral

Global warming. Energy requirements. Emis-sions. Climate change has certainly been one ofthe hottest topics of discussion in recent months.The fact that people are now talking more aboutclimate change is both positive and extremelyimportant. Munich Re, however, is already a stepfurther: in just a few years, the entire reinsurancegroup will be climate-neutral, a move whichplaces Munich Re at the very forefront of devel-opments. After all, actions always speak louderthan words.

Munich Re on the move: Everybodyneeds to get involved in climatechange. The new office building atMünchner Tor conforms to the highesttechnical standards of energyefficiency.

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Renewable energy sources: Thesolar units on the roof of the Groupheadquarters in Munich generatesome 60,000 kWh electricity peryear, which is then fed into the grid.

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Munich Re, Topics 2/2007 Climate neutrality

Time to act

For Munich Re climate change primarily means having tomanage rising losses from weather catastrophes anddeveloping intelligent products for a changing energy andindustrial mix. However, a company also needs to takepositive action itself in order to advance its credibility inthe matter of climate change. With this firmly in mind,Munich Re has decided that its head office in Munich willbe made climate-neutral by the year 2009, followed by theentire International Organisation in 2012.

Jürgen Fischer

Having discovered the subject of climate catastrophe, themedia have now triggered a public debate on the topic thatis creating a highly irrational and totally counterproductiveclimate of fear in the minds of the public. Financial market-eers on the other hand see climate change as the money-spinner of the century. Munich Re refuses to becomeinvolved in this frequently heated and crude public debate.Our job is to deal with the actual risks involved. After all,that is what our business is all about. We are preparingourselves today for the realities of the future. The subjectof climate change first appeared on Munich Re’s radar in 1974. Even back in the 1980s we were already busy developing instruments for making the relevant hazards insurable. Thinking ahead is still the name of the gametoday.

Climate change is a complex, multi-faceted strategic topicfor Munich Re. Our most important task and at the sametime greatest opportunity is to develop intelligent productsthat make climate risks insurable. One thing is certain:demand for insurance cover will continue to rise strongly.

Thanks to our professional risk management, we are ableto shoulder an increasing number of weather catastropheswithout any great difficulty. Moreover, Munich Re’s holisticapproach to business means our investments are based onsustainability criteria.

Climate change, however, entails a whole lot more thanjust claims and investments. Assuming responsibilityrequires becoming involved and taking action. Our object-ive of climate neutrality announced at the end of June is a concrete step forward and sees us take a leading role inthe insurance sector. Group headquarters in Munich,where over half of the total reinsurance workforce isbased, will be carbon-neutral by 2009. The whole reinsur-ance group, comprising over 50 locations and 7,000 staffworldwide, is expected to follow suit by 2012.

What is climate neutrality?

All companies produce carbon emissions, even those inthe seemingly unpolluted world of service provision. Ourhead office in Munich produces about 33,000 tonnes everyyear. We plan to reduce emissions per employee, use“green” power sources and invest in renewable energies

Carbon emissions will be reduced by 10%per employee by 2012, compared with the2006 figures.


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and reforestation programmes. Although the investmentprojects will call for a greater one-off investment than thepurchase of emission allowances, they will not only have ameasurable impact on the climate but will also bring theadded benefit of earning interest at the market rate. Theremaining attributable carbon emissions will be compen-sated for by participation in climate-protection projects inemerging countries; for these we have developed a spe-cific new cover – the Kyoto Multi Risk Policy (see article onpage 38).

Top of our agenda is increasing energy efficiency. Carbonemissions will be reduced by 10% per employee by 2012,compared with the 2006 figures. This is to be achieved bymeans of intelligent power management, more efficient ITequipment and the increased use of videoconferences.However, it will also include structural modifications to ourbuildings such as improved insulation and more moderncooling systems. Our conference centre at Schloss

Hohenkammer, with 177 hotel beds, will become almostentirely independent of external power providers thanks tothe construction of a biogas plant on the adjacent farm.

The use of “green” power sources will further reduce car-bon emissions. Instead of using fossil fuels such as oil, gasor coal, such systems obtain their power from renewableenergies (sun, wind, water) and are thus emission-free.Ideally, the changeover will take place in 2007, or by 2008 at the latest.

Investment in photovoltaics

Investing in photovoltaic installations will also help us toachieve our objective of climate neutrality. Munich Re hasalready spent some €17m on solar energy projects, most of it on a photovoltaic noise barrier on the A94 motorwaynear Töging. This investment confirms Munich Re’s role asa forerunner in the field of climate neutrality. Such projects

The path to climate neutrality

Climate neutrality can be achieved by various means. The objective is to come up with an optimumpackage of measures that takes account of costs and reputation.

Step 2: Compensate “non-avoidable” emissions

The elements of a climate neutrality strategy

Step 1: Reduce emissions

– As low costs as possible for each tonne of CO2 notproduced.

– Positive internal and external evaluation of the measure;there is criticism of measures regarding renewable ener-gies in Germany and biological sink projects (forests).Such projects are therefore most suitable as a sort ofaccompaniment to the portfolio of measures.

– In the case of investments in photovoltaics and forestry,the carbon credits should be regarded as a side effectsecondary to the aspects of return and ALM.

Purchase and retire emission allowances – Investment in VER projects

Increase energyefficiency

Use “green power”

Carbon credits as “core objective”

Investment in forestprojects

Investment inrenewable energies

Carbon credits as a “side effect”

Requirements for reduction/compensation measures

Reforestation and forest cultiva-tion are important components of the sustainability concept atMunich Re’s Schloss Hohenkam-mer Conference Centre.

The Munich Re Centre in Torontogoes down deep to help protect theclimate. Cold water from the bottomof Lake Ontario will bring a coolbreeze to its offices.

The Munich Re Centre, Toronto, has along track record of fighting againstclimate change. For example, projectshave been initiated to update thelighting system and retrofit the build-ing with more energy-efficient electricmotors. A short time ago, the Centre’sair-conditioning system reached theend of its economic life after havingbeen in operation for almost 35 years.Instead of replacing the aged system’sthree chillers and two cooling towerswith new ones, an agreement wassigned with utility company Enwaveto connect the building to their in-novative Deep Lake Water Cooling(DLWC) system.

The concept behind DLWC is as sim-ple as it is fascinating: as in any largebody of water, the temperature at thebottom of Toronto’s Lake Ontario is aconstant 4°C. DLWC technology takesadvantage of this fact by drawingwater from a depth of 83 metres andusing it for chilling water in a closed-loop system, which already providescooling for a large number of build-ings in downtown Toronto. The waterloop circuit has sufficient capacity tochill about 300,000 m2 of office space.

The benefits are obvious: the systemuses about 90% less energy, reducesthe waste heat discharged into LakeOntario by conventional power plants,and reduces annual CO2 emissions by1,180 tonnes. The project does notonly have environmental benefits buteconomic ones as well. Both over the 10-year and 20-year horizon, the ratescharged by Enwave for delivering thecold from the deep will be more thanoffset by savings in investment andmaintenance. In view of the fact thatEnwave has supplied district heatingto the Munich Re Centre ever since itwas built in 1972, there were nodoubts that the company would alsoprovide a reliable DLWC service. TheMunich Re Centre is looking forwardto its first summer with the Deep LakeWater Cooling system, knowing that itwill make a tangible difference in thefight against climate change.

The cold that comes from the deep

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Lake Ontario, Toronto: The con-stant 4°C water temperature at thebottom of lake Ontario is ideal as a cooling agent in air-conditioningsystems for office buildings.

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not only make economic sense; they have also reducedMunich Re’s carbon account by nearly 2,000 tonnes so far.In order to gain further credits, we are planning to installsolar units this year with an additional output of around 18MW.

Reforestation projects

Investment in innovative reforestation projects is a furtherstep on the road to climate neutrality and we are currentlyin negotiations with an external partner in this connection.An important contribution to climate protection is thereforestation of millions of hectares of destroyed forestland now lying bare in the tropical and subtropical regionsof the world. This will increase the capacity of areas cap-able of absorbing carbon, or biological sinks as they areotherwise known. Follow-up conferences to the KyotoProtocol have decided that biological sinks can be used inindividual carbon balances. Forest owners are thus in aposition to earn and sell carbon allocations. Munich Reinvestments in such reforestation programmes also makea significant contribution to climate neutrality, as they arecertified as VER or CER projects and can be used towardsneutralising internal carbon emissions at Munich Re.Munich Re is considering a range of forestation projects invarious parts of the world, which will help make the wholeprogramme less risky and less subject to the vagaries ofnature such as forest fires, windfall or beetle infestation.

How we generate allowances

CDM projects are official projects under the Kyoto Proto-col’s Clean Development Mechanism. They are establishedin developing countries, registered with the United Nationsand generate so-called Certified Emission Reductions(CER). A CER represents one tonne of reduced carbonemission. Verified Emission Reductions (VER), on the otherhand, are a form of voluntary greenhouse gas compensa-tion. They involve smaller projects organised on the linesof the Clean Development Mechanism, but which are notusually registered with the United Nations for cost reasons.

The type of projects related to VER/CER mechanisms thatare of particular interest to Munich Re are those with a def-inite business relevance. This is the case in our new targetmarkets of China and India, for example. There we plan tosupport wind power projects that not only make a signifi-cant ecological contribution to avoiding emissions but alsomeet socio-economic requirements by creating jobs andbuilding up a technological infrastructure.

All measures that help us to achieve our objective of cli-mate neutrality also help to ensure that Munich Re sharescontinue to be listed in the most important sustainabilityindices such as Dow Jones Sustainability and FTSE4Good.More and more investors are influenced by such criteria intheir investment decisions. Our general objective can besummarised as follows: achieve carbon neutrality, prefer-ably by means of our own projects and suitable in-housemeasures, with as little reliance on emissions allowancesas possible.

Jürgen Fischer is Head of Sustainability Management in Group Development. He is a qualified mathematician and Munich Re’s Environmental Officer.

We want to achieve carbon neutrality,preferably by means of our own projects and suitable in-house measures, with aslittle reliance on emissions allowances aspossible.

We at UBS take the Stern Reportfindings very seriously indeed andinclude them in our analyses.

Dr. Gerhard Wagner

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Dr. Michael Bös: Up to a few months ago, climatechange and sustainability tended to play a subordin-ated role on the financial markets. Now there is a livelydiscussion about it. What brought about this change inawareness?Dr. Gerhard Wagner: Several factors come togetherhere. What finally shook the investors out of their slum-ber was certainly the Stern Report, which at the end of 2006 first quantified the impact of climate change onglobal growth. Nicholas Stern succeeded in translatingthe scientific results of climate researchers into econo-speak. Add to this a relatively warm winter. And weshould also not forget the Oscar-winning climate docu-mentary “An Inconvenient Truth” by Al Gore, whichwas widely reported in the media.

Bös: Do you think this reappraisal on the financialmarkets is simply a fad or is it a totally new evaluationapproach?Wagner: That’s a highly controversial issue in assetmanagement. We at UBS take the Stern Report findingsvery seriously indeed and include them in our analy-ses. Obviously, events such as terrorist attacks or arecession can temporarily mask the basic trend on thefinancial markets. But as far as we can tell at this junc-ture, investors will have to live with climate change for years to come. By the way, we actually have beenkeeping track of this topic on our radar since 2001.

Bös: In the ongoing public debate, companies oftenview environmental protection more like a cost factorthat hampers competitiveness. Wagner: That might be the general impression but onehas to make a clear distinction between differentbranches of industry. For example, the automotiveindustry has traditionally made heavy weather of thistopic. But in fact it’s a political problem. It’s not as ifpeople themselves freely elect to fit catalytic convert-ers in their vehicles. It was many governments who dis-covered the importance of environmental technologyas a future booming export market. Germany is at theleading edge of renewable energies technology, andmany of the developments in this field are being copiedby other countries. That’s one of the few areas in whichEurope has a head start on the Americans. But it is ofcourse justified to ask how much the public purseshould subsidise industry. Currently, some four to sixbillion euros are being forked out in Germany to sup-port green projects, and ultimately it comes out of theconsumer’s pocket.

Bös: At the same time, nuclear energy also profitedfrom enormous subsidies. Wagner: That’s true, and renewable energies still lagfar behind the nuclear sector. However, I see a potentialrisk. Germany invests a lot in green technologies, yetas soon as the products start to become competitive,production is farmed out to regions with much lowerwage costs.

Gains on sustainability

Climate change has reached the financial markets. Dr. GerhardWagner, Head of Socially Responsible Investments at majorSwiss bank UBS, explains in an interview with Dr. Michael Böswhy the sustainability factor is becoming increasingly impor-tant in connection with investments and why eco-investmentsoffer above-average growth opportunities.

Dr. Michael Bös in conversation with Dr. Gerhard Wagner


Bös: Will climate change have any impact on share priceson the stock and bond markets? Wagner: That will depend on how dramatically the climatechanges. Essentially, climate change harbours new risksfor the whole economy, and since investors are bearish bynature, the news is not good for share prices. On the otherhand, certain branches of industry will come out on top.Another point to remember is that climate change will bevery different from region to region. But a banker doesn’thave to tell a reinsurer that.

Bös: More and more companies are taking account ofsustainability in their corporate strategy. Is it crucial toyour investment decisions whether a company is carbon-neutral? Wagner: For sustainability funds, to which pensionschemes are giving increasingly greater weight, that is thekey to inclusion in the investment universe at all. For me,what also counts is that major companies assume politicalresponsibility and act as role models. It is at least as im-portant to increase profitability by having a serious climatepolicy in place. This functions better in some areas, whilein others it makes little sense. If I had the choice between

two companies in the same sector, I would always invest in the one that had integrated sustainability, climate, andcarbon neutrality in its corporate strategy.

Bös: Does it make any difference to you whether climateneutrality is achieved by pure energy savings or throughthe purchase of emissions rights? Wagner: No. If we accept emissions trading as a usefultool, then it is logical to strive for carbon neutrality alongthis path too. At the end of the day, emissions are actuallysaved, maybe not by you but by someone else.

Bös: In what areas do you see most opportunities forgrowth through climate change in the long run? Wagner: Clearly in renewable energies and technologiesdesigned to increase energy efficiency. At this point intime, however, the discussion on this topic is more qualita-tive than quantitative. Assuming that the industrial coun-tries are to halve their emission levels by 2050, renewableenergies offer enormous potential. As soon as photo-voltaic systems can compete without subsidies – presum-ably in about five years – the sector will achieve phenom-enal growth rates. As financial investors, we also askourselves what companies profit from changes in condi-tions relating to emissions trading, i.e. whose performanceis directly linked to the price of CO2. We are talking aboutfirms that create and sell CO2 certificates. I evaluate themand invest there.

Bös: So far, the large fluctuations in the price of CO2 haveproved to be a less than reliable basis.Wagner: The market is still young and in the developmentstage, which would certainly explain the big swings. Butjust picture to yourself what would happen if the future USPresident, Democrat or Republican, were to call for CO2

trading based on the European model. At a stroke wewould have a global market. A whole bunch of investorsare speculating on exactly that happening. Besides, itmakes sense to invest in the shares of CO2 winners (for rea-sons of diversification) if the CO2 price is not correlated toraw materials.

Is it crucial to your investment strategywhether a company is carbon-neutral?

Dr. Michael Bös

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Climate neutrality

Assuming that the industrial countries are tohalve their emission levels by 2050, renew-able energies offer enormous potential.

Dr. Gerhard Wagner

Bös: Emerging countries like China and India accuse indus-trial nations of having promoted the interests of theircompanies to the detriment of the environment. Now, asthey are crossing the industrialisation threshold alongcomes the West with its CO2 restrictions wanting to putthe brakes on growth in these countries.Wagner: I can understand that accusation. However, pollu-tants know no boundaries. Perhaps these countries canbenefit from our mistakes and go straight for the muchmore efficient decentralised gas-fired or hydroelectricpower plants.

Bös: Let’s have a look at insurance as the risk carrier. Howdo you think climate change will affect underwriting risks? Wagner: That’s the most difficult question for all financialinvestors. I actually studied climate physics, and even forme it is impossible to quantify the risks exactly. I also knowfull well that the insurers have experts that have been deal-ing with this subject for years. Basically I believe that a

small increase in extreme events has a positive impactbecause the demand for insurance cover rises. But thatonly applies if the models are good enough to preventclaims payments from getting out of hand. As long as theclimate changes only very gradually, I think the insuranceindustry will come out of this as a winner.

Bös: Are the reinsurers doing their job right by bringingthe new risks to the attention of the public? Wagner: I think reinsurers have already made a major con-tribution to informing the public about the risks of climatechange. And they will have an important role to play infuture, too, as they can make clear to governments, finan-cial markets and stakeholders which risks or particularareas of land are no longer insurable.

Bös: Do you expect more risks in future to be transferredto the capital markets, for example in the form ofcatastrophe bonds?Wagner: The trend is certainly heading in that direction.

Dr. Michael Bös is Head of the Asset Liability Management Division on Munich Re’s Reinsurance Committee. He has a degree in businessmanagement and is also responsible for investment strategy.

Dr. Gerhard Wagner

Dr. Gerhard Wagner has been working since 2005 in thearea of portfolio management at the UBS (Luxembourg)Equity Fund and is responsible for global innovators. The39-year-old’s career at UBS started in 2001 as SociallyResponsible Investments Analyst for the energy sector inUBS Global Asset Management. Prior to that, he hadobtained a doctorate in physics and was employed forthree years at the Swiss Federal Institute for Environmen-tal Science and Technology.


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The Kyoto Multi Risk Policy

CO2, CH4, N2O, FCKW, SF6 – chemical substancesthat have a lot to answer for as greenhouse gasesthat contribute to global warming. Although thereis still no grand plan in place to reduce global emis-sions, some important steps in the right directionhave already been made: the European EmissionsTrading Scheme is up and running and workingwell. The transfer of efficient technologies toemerging countries is booming. The insuranceindustry is providing its support through innova-tive products. One such example is Munich Re’sspecially tailored cover: the Kyoto Multi Risk Policy.

Unremitting, expensive and veryhazardous: greenhouse gas emissionscan only be sustainably reduced byreplacing large amounts of fossil fuelswith renewable energies.

Andrei Marcu is President and CEO of the IETA.He has spent most of his career in the electricpower industry with Ontario Hydro. He alsogained experience managing Private SectorCooperation in the UN Development Pro-gramme. Mr. Marcu holds a degree in electricalengineering and an MBA.

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Munich Re, Topics 2/2007 Kyoto Multi Risk Policy

Volker Horch: In June, the G8 members agreed to signifi-cantly reduce greenhouse gas emissions at the summitmeeting in Heiligendamm. How would you evaluate thesummit results?Andrei Marcu: Although the negotiations were difficult, the summit participants have made progress, no doubtabout that. The agreements definitely are a step forward.And we very much applaud the fact that this debate willcontinue under the umbrella of the UN FrameworkConvention on Climate Change (UNFCCC). However, witharound 170 nations involved in the UNFCCC, it is a chal-lenge to reach an agreement that will be accepted byeverybody. Having worked with the UN, I understand howcomplex UN negotiations can be. It is extremely beneficialthat a group like the G8 plus 5 (China, India, Brazil, Mexicoand South Africa) take the lead and draft some of the basicprinciples and understandings that can be brought into theframework convention. But it will be difficult to achieveconsensus for an issue of this magnitude.

Horch: Smaller organisations have it easier. The IETA wasestablished in 1999 to establish a workable internationalframework for carbon trading. Are you satisfied with theresults achieved so far?Marcu: Yes, I am happy with the achievements with respectto both IETA and the European Emissions Trading Scheme.A few years ago, the carbon market was only a notion thatsome companies and politicians had. And only two yearsago, those who had said that we will have a ten-billion-dollar market by 2010 were sneered at. Now we are waybeyond that – this is a huge success. In terms of the IETA

itself, I am pleased to say that we started with 20 membersand now we are 160 – and growing at an incredibly rapidpace. I am confident we will continue to add members at a similar rate in the USA and Japan.

Horch: Let us take a closer look at the EU ETS. Howeffective do you think it has been? What are itsweaknesses? Marcu: The primary difficulty was that we started withoutbaseline historical information. It was a pioneering projectin 2005 and the allocation of emission permits was notbased on very sound data. We knew far too little about themarket players and their behaviour. So we ended up with a “long” market where more credits were allocated than were needed. With supply exceeding demand, theinevitable happened. Prices dropped. But since then the market has recovered and evolved further. And it canjustifiably be called an efficient market today.

Europe’s business culture has changed

“The European Emissions Trading Scheme (EU ETS) is asuccess story and has been created in record time”, saysAndrei Marcu, President of the International EmissionsTrading Association (IETA). Volker Horch of Munich Re askedhim about teething troubles, future market trends and theprospects of linking systems globally.

Interview with Andrei Marcu


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Horch: How do you judge the success of the market?Marcu: There are a number of factors. One of them is thatmarket mechanics are working. And, most importantly,emissions are being reduced. According to MIT studies, itseems that we had accomplished about 100 million tonnesof reductions in Europe alone in 2005. It is more difficult toanswer the question whether new, energy-efficient orabatement technologies are being developed. Within twoyears of having a carbon price, power companies reactedat operational level, switching from coal to gas and launch-ing internal efficiency programmes. In curbing emissionsfrom much of heavy industry, emissions trading alsoaffects cement, steel and aluminium companies. Theseorganisations have a time horizon of 25 to 50 years. Whileindustry-specific aspects are important, what counts mostof all is that the business culture in Europe has changed.We have a price for emissions and this is crucial for cor-porate decision-making.

Horch: Last year the total volume of the carbon markettrebled on the previous year’s figures. Is this dynamictrend likely to continue?Marcu: I think the volumes will continue to grow. We haveto distinguish, however, between the EU ETS and the CleanDevelopment Mechanism (CDM). The CDM market, whichencourages the transfer of technology from industrialisedto developing nations, will probably slow down at somepoint. One reason for this is that market players have pre-pared themselves for the upcoming first Kyoto period. Interms of the EU ETS, the current dynamic trend will mostlikely continue, with more players coming in, and morefinancial institutions. You can look at this market in manyways, it’s a commodity market, it’s a financial market – andthe secondary market is also gathering momentum.

Horch: At present, the emerging carbon markets are quitefragmented. Are you expecting interaction in the foresee-able future from the regional schemes in the USA, Canadaand Japan with the EU ETS?Marcu: We are currently running a survey for Carbon Expo.The view is that the schemes will be linked within the nextten years, which will be a major breakthrough. The benefitsare very important and the complexity is not as great aspeople make out. It is not something you do in an after-noon but we should not overcomplicate matters. A tonne is a tonne, so we need a consistent unit of measure. At theend of the day it is just a matter of political will. I wouldguess that probably by the end of the Kyoto period weshould see some system linked to the European scheme.

International Emissions Trading Association(IETA)

In 1999, the IETA emerged from the United NationsConference on Trade and Development (UNCTAD), result-ing from cooperation between UNCTAD and the WorldBusiness Council for Sustainable Development (WBCSD).Today, the non-profit and non-governmental organisationrepresents 160 leading international companies – amongthem brokerage firms, providers of consulting, monitoringand financial services, as well as large industrial concernssuch as Alcan, Shell International Limited and RWE. TheMunich Re Group is also a member of the think-tank IETA,whose aim it is to establish a global greenhouse gasmarket to address the issue of climate change, in line withthe mechanisms of the Kyoto Protocol.

There are also emissions markets in theUSA, Canada and Japan. However, they are still quite fragmented with little in theway of interaction.

Volker Horch

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Three flexible mechanisms – Three currenciesThe 1997 Kyoto Protocol approved three flexible mechanisms: the European Emissions Trading Scheme (EU ETS), the Clean Development Mechanism (CDM) and Joint Implementation (JI). The objective of all three mechanisms is to reduce greenhouse gas emissions.

The EU ETS, first introduced in 2005,is the world’s first multinational emis-sions trading scheme and the fore-runner of a full-scale internationalsystem. Member States issue a fixednumber of emission allowances tocompanies, and these can be freelytraded on the market. The EU ETS isdivided into two phases. Phase oneends in 2008 and phase two runs from2008 to 2012.

Special features: Energy-efficient,environmentally compatible manage-ment is rewarded because certificatesthat are not needed can be convertedinto money – whilst on the other handpolluters are obliged to purchaseadditional emission allowances. Thisshould bring about a gradual reduc-tion in the level of pollutant emissions.

Currency: EU ETS credits are listed inEuropean Allowances (EUAs): oneallowance corresponds to one tonneof carbon dioxide. Although EUAtrading prices were subject to majorfluctuations at the start, volatility hasdecreased in recent months.

If companies from industrialisedcountries implement projects in coun-tries to which no quantifiable reduc-tion targets apply, both sides benefitprovided energy efficiency isincreased or the level of pollutantemissions reduced in the developingcountry. The CDM arrangement hasbeen in force since 2005. Currently,some 700 projects have been officiallyregistered and there are many appli-cations in the pipeline.

Special features: By means of CDMprojects, a company which develops a technology and exports it at its ownexpense generates carbon credits.The emerging country benefits fromthe technology transfer, improves its environmental balance sheet andgenerally also receives tradablecertificates.

An example would be a German firmwhich installed a high-tech powerplant in India that polluted less thanan existing one.

Currency: The credits are issued in theform of Certified Emission Reductions(CER) and can be traded bilaterallybetween companies. The market isliquid. Like EUAs, CERs can also beused to substantiate emissionallowances within the framework ofEU ETS. Like every other emissionallowance, one CER certifies the rightto emit one tonne of carbon dioxide.

The term Joint Implementation refersto measures implemented in otherindustrialised countries (Annex Icountries) to which Kyoto Protocolemission targets also apply. Creditingwill not start until 2008. However, anumber of projects have been initi-ated since 2000 and these will receivetheir reduction credits retroactively.

Special features: Transnational co-operation promotes technology trans-fer, environmental protection and eco-nomic efficiency, since countries withhigh emission-reduction costs canfulfil their commitments in countrieswhere savings can be more easilyachieved.

An example would be investment by a German energy company in an eastEuropean transition state such asBulgaria.

Currency: The reduction credits gen-erated by JI are listed in EmissionReduction Units (ERUs) and can bepublicly traded. Again, an ERU corres-ponds to one tonne of carbon dioxide.

European Emissions Trading Scheme (EU ETS)

Clean Development Mechanism (CDM)

Joint Implementation (JI)


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Horch: Which countries are most advanced when it comesto linking schemes?Marcu: In Canada, we have been talking about this for along time. Now the government has announced the desireto create an emissions trading scheme with an offset pro-gramme. We are consulting them in this respect. It seemsthat the scheme will be introduced in 2010, maybe a littleearlier, as a pilot phase. In the USA, some sub-national sys-tems could probably be linked faster, given the necessarypolitical will. But the US schemes cover a limited numberof installations and companies, and the market is not verylarge. Basically, the schemes could simply accept eachother and each other’s emission credits, much like the way the California Climate Action Registry accepts CERs. A formal linkage is probably going to take a little longer.

Horch: Efforts have been intensified to advance researchon carbon capture and storage (CCS), a technology thathas generated a lot of controversy. The IETA is keen tohave CCS acknowledged under the EU ETS as a methodfor reducing emissions. Why is IETA in favour of this?Marcu: People always look for the silver bullet, which isalmost impossible to find. We have to accept that we areunlikely to achieve a technological breakthrough whichwill fundamentally change our energy matrix in the nearfuture. All scenarios show that for the foreseeable futurewe will continue to rely on fossil fuels. People still want touse coal, which is why we advocate integrating CCS intothe EU ETS. But emissions trading is not going to do it onthis particular field alone since we still need consensus oncarbon storage among the wider public. There has to befurther cooperation between governments and business inorder to develop CCS technology which is deployable andmarketable.

The insurance industry has been one of theindustries at the forefront of climate changefor good reason.

Andrei Marcu

Glossary

UNFCCC: United Nations Framework Convention on Climate ChangeThe United Nations Framework Convention onClimate Change, adopted in 1992, is an internationalenvironmental agreement, the objectives of whichare to prevent dangerous anthropogenic interferencewith the climate system and to counteract globalwarming. The current 196 signatory states meet atannual world climate summits, the best-known ofwhich took place in Kyoto in 1997.

Annex I countriesAnnex I of the UN climate convention comprises thecountries that have given a specific undertaking toreduce greenhouse gas emissions. These are pri-marily the industrialised countries and a number ofemerging countries. Non-Annex I countries areaccordingly those with no binding reduction target;such countries can, however, participate in the Kyotomechanisms (CDM and JI) and are then subject tocertain reporting and cooperation obligations.

AAU: Assigned Amount UnitsAAUs indicate the binding emission amounts foreach Annex I country. A single issue is made for thefull 2008–2012 assignment period (by contrast, EUETS certificates are apportioned annually). Each AAUconveys the right to emit one tonne of CO2 equiva-lent, which includes all six Kyoto greenhouse gases.

VER: Verified Emission ReductionVER stands for Verified Emission Reduction credits, a voluntary form of greenhouse gas compensationinvolving smaller projects organised on CDM linesand not registered with the United Nations for costreasons, and projects in countries that have not rati-fied the Kyoto Protocol and accordingly do not qualifyunder the CDM system. One VER corresponds to onereduced tonne of CO2.

CCS: Carbon capture and storageCO2 sequestration involves capturing carbon dioxidefrom fossil fuel emissions and transporting it to asuitable permanent storage site. Numerous expertspredict that this technique will bring considerableclimate-protection benefits since it will be a means of isolating the greenhouse gas CO2 from the atmos-phere.

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Horch: Considering the currently available technology andthe efforts to increase energy efficiency, how realistic arethe emission targets of the European Union?Marcu: While the objectives for 2012 are certainly ambi-tious, they don’t seem entirely utopian. We have to re-double our efforts and are currently working on integratingother sectors not yet included in the ETS, such as aviationand transport. If you look at a longer term, this is just thebeginning, but we are moving ahead quickly to make somevery historic changes. Europe had started decarbonisingits economy early. This is now paying off. We already seethis in the wind industry where European wind manufac-turers have an edge.

Horch: What do you expect from the insurance industryregarding climate protection and emissions trading?Marcu: I understand very little of how the insurance indus-try really functions. But from an economic point of view, itplays a key role by providing cover for losses from naturalcatastrophes and developing products for the emissionstrading market. It also is an important source of capital,given the assets that the insurance industry is managing.Those managing huge pools of capital tend to ask the rightquestions, such as: What are the economics of climatechange and what is needed to take the risks into accountwhen making business decisions? The insurance industry

has been one of the industries at the forefront for a goodreason. It faces a situation that is difficult to quantify, but itis significant and therefore needs to be modelled.

Horch: Do you expect market-based mechanisms like cap-and-trade to be relevant one day for you and me as indi-viduals or private households?Marcu: No, I would not go as far as that. Tailoringallowances to a person’s lifestyle is difficult because some-body has to quantify and allocate them. I would prefer tosee a personal, voluntary approach, a carbon market with ahuman face. Since businesses tend to pass on their coststo consumers, people will ultimately be affected. My viewis that many consumers will want to act and come up withinnovative solutions.

Volker Horch is a consultant in Munich Re’s Special and Financial RisksDepartment. He has a degree in business management and is responsiblefor product development in facultative underwriting.


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The European Emissions Trading Scheme (EU ETS) hasgiven climate change a measurable, economic component.Emissions have thus become production factors and theirdeployment is subject to specific upper limits designed toachieve the emission targets set out in the Kyoto Protocol.Andrei Marcu, President of the International EmissionsTrading Association, is convinced that “despite a slowstart, the system is now well underway”.

Emissions trading is one of the three “flexible mechanisms”approved by the Kyoto Protocol in 1997. The Clean Devel-opment Mechanism (CDM) was established in order toinvolve developing and emerging countries in the globalclimate-protection endeavours, principally by promotingthe transfer of clean technologies between industrialnations and emerging countries. Joint Implementation (JI),the third mechanism, rewards the transfer of technologyfrom industrial nations to transition states. Although it isalready in force, the formal infrastructure for handlingmatters such as project registration and the generation ofcarbon credits will not be in place before 2008.

Limited insurance cover

Thanks to CDM, significant investment is now flowing intodeveloping and emerging countries, first and foremost in renewable energies, technologies to reduce greenhousegases and measures to increase energy efficiency. So far, most of the CDM projects have been set up in India,followed by Brazil, China and Mexico. Other importantlocations are Chile, South Africa and Indonesia.

The provision of insurance cover for CDM projects hasfrequently been hindered by unfavourable local conditionssuch as political, social or economic instability, pooraccess to the projects and underdeveloped financial mar-kets. Moreover, risk assessment can be extremely difficultgiven the absence of adequate historical data and experi-ence. Last but not least, renewable energy projects usuallyinvolve relatively low insurance values.

Secure basis for emissions trading

The mechanisms approved in the Kyoto Protocol transformemissions into economic goods and open up entirely newbusiness opportunities for companies. To help achieve a break-through in international climate protection, Munich Re hasdeployed its technical know-how and extensive experience todevelop an innovative coverage concept known as the KyotoMulti Risk Policy.

Volker Horch

Moreover, risk assessment can be extremely difficult given the absence ofadequate historical data and experience.

India and energy projects proving most popularBreakdown of Clean Development Mechanism (CDM) projects by sector and country:

Distribution of registered project activities by scopeEnergy industries 51.8%Waste handling and disposal 21.3%Agriculture 8.15%Fugitive emissions from fuels 7.6%Manufacturing industries 6.3%Others 4.9%

Registered project activities by host partyIndia 35.1%Brazil 14.5%China 12.6%Mexico 12.0%Chile 2.4%Malaysia 2.2%Korea 2.0%Others 19.2%

More than half of all CDM projects involve the energy sector, with wastehandling and disposal next on the list. By contrast, projects involvingagriculture, fuels and manufacturing are much less prevalent.

Source: UNFCCC

The most popular country for CDM projects is India, followed by Brazil, China and Mexico. Overall, though, numerous emerging countriesparticipate in CDM projects.

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Tradition and innovation side byside: India is not just an agricul-tural society. It is also a populardestination for investments inCDM projects.


In a developing country, a coal-firedpower station and a landfill emit largeamounts of carbon dioxide and thegreenhouse gas methane.

Actual status

Target status

Climatic impact =

–

–

As part of a CDM project, a company with reductioncommitments designs, finances and installs an eco-friendly gas extraction plant for the landfill.

The landfill gas containing methane is extracted andused for the production of electricity, which cuts theamount of coal used at the power station and reducescarbon emissions, as methane is much cleaner burn-ing than coal.

Example of a Clean Development Mechanism project

Landfill gas

Landfill gas

Landfill gas

Actual Target

WasteCoal-fired powerstation

CO2

CO2

CO2

Smaller-scale electricity production

Extracted landfill gas

The difference in emissionsbetween the actual situationand the target status repre-sents the climatic impact ofthe CDM project, which iscredited to so-called CertifiedEmissions Reductions (CERs).In general, both companies inindustrial nations and thosein developing countriesreceive CERs.

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Photovoltaic companies: It is notonly the traditional industries thatare booming in China. The countryis also investing heavily in tech-nologies for renewable energies.

A new concept: The Kyoto Multi Risk Policy

In order to help CDM projects overcome these obstacles,Munich Re has developed a tailor-made insurance product– the Kyoto Multi Risk Policy, or KMR for short. The cover,which we plan to market in collaboration with our cedants,incorporates familiar elements from property insurancesuch as fire, CAR and EAR, from credit and bond insuranceand from the insurance of political risks. KMR’s specialfeature is that it secures carbon credits, or to be more pre-cise, it provides cover against the risk that a facility set upas part of a CDM project, perhaps a biomass power plant,might not produce the expected reductions. Besides theproperty values and the income generated by the under-lying activity (e.g. power generation), the revenues fromcarbon credits are also fully covered thanks to a variety ofelements from traditionally separate insurance lines whichcan be combined in accordance with different marketneeds.

Multi-year policies are issued which cover the entire dura-tion of the project. However, given the nature of the projectsand the uncertainty regarding the issue of the follow-upagreement to the Kyoto Protocol, for the time being policyterms will expire in 2012.

Target groups and requirements

The target group for the new policy is extremely heteroge-neous, including companies that are forced to reduceemissions and are planning CDM projects to achieve thisobjective (so-called compliance buyers), professional pro-ject developers seeking to earn carbon credits, CO2 fundsand financial market players. In spite of the different inter-ests involved, a key factor for everyone concerned is thatthe carbon credits are generated to the planned or agreedextent – which is precisely where Munich Re’s KMR policycomes in.

Essentially, the policy includes all the project’s primarycovers. It is too early to say just to what extent the individ-ual players will take advantage of this. Depending on thelocation involved, it may also make sense to take out trad-itional insurance locally, to ensure compliance with localprovisions and regulations, for example. The KMR policy istherefore more often than not likely to be concluded in theform of difference-in-conditions (DIC)/difference-in-limits(DIL) coverage. The cover will then focus on providing car-bon credits rather than on the project substance itself or itsprimary income.


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Risk-assessment aspects

In terms of risk profile, a CDM investment is much thesame as any other energy sector project designed to gen-erate renewable energies or innovative technologies in developing countries – apart perhaps from the regula-tory risk. The fundamental difference is that a new tradingasset is created: carbon credits.

Initially at least, Munich Re will concentrate on underwrit-ing types of project for which it has many years of under-writing and claims experience. These include renewableenergies such as wind power, biomass, solar energy andhydroelectric power; projects designed to increase energyefficiency, such as waste heat recovery; and fuel switching,i.e. the change to low-emission energies (gas instead ofcoal); and finally avoiding methane emissions, for exampleby extracting gas from landfills.

In regional terms, the new policy focuses on project loca-tions in India, China, Chile, Brazil, Mexico and South Africa.The main factors that determine the choice of location arethe availability of a fully-functioning CDM infrastructure,relevant project experience and suitable socio-economicparameters.

Two growth areas: CDM and JI

The market for emissions rights is just beginning todevelop. The politically inspired economic evaluation ofpollution rights is proving to be a durable incentive thatencourages all sectors of the economy to come up withinnovative solutions for protecting our climate.

The transition states of eastern Europe and the formerSoviet Union will also be hosting JI projects in 2008 inaddition to CDM projects. One thing is already certain: JI will also open up some very interesting businessopportunities for innovative insurance policies, whichMunich Re will be keen to fully utilise.

Besides the property values and the income generated by the underlying activity,the revenues from carbon credits are alsofully covered.

The electricity market in Leipzig is expanding emissions trading as part of its multi-commoditystrategy.

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An innovative cover for a new market segment

Climate change is a strategic issue for Munich Re. Therefore, we havedecided to provide insurance solu-tions that help to reduce emissions.This innovative business segmentrequires a pioneering approach andpromises new opportunities forgrowth.

All parties concerned in the climate-change debate are facing the chal-lenge of reducing greenhouse gasemissions. With its Emissions TradingScheme, Europe has made a first,important step towards this goal.However, global climate-protectionefforts would benefit enormously ifthe CO2 trading scheme wereexpanded to include the world’sbiggest markets such as the USA.

It is equally important to include theemerging economies in the scheme.This can be achieved through thedevelopment of clean technologies,and by strengthening technologicalcooperation. Transfer of “green” tech-nology via the Clean DevelopmentMechanism (CDM) has increased rap-idly during the last few years – albeitstarting from a low base. It is up to the insurance industry to support thisdevelopment.

Rather than being just a part of thesolution, Munich Re sees itself as adriving force. For example, we haveexplicitly included sustainabilityaspects in our corporate policy, andare reducing our company’s carbonfootprint by investing in photovoltaic

systems (cf. article on carbon neutral-ity beginning on page 21). And we areleading the way in developing newinsurance products. We have the nec-essary know-how and proximity to themarketplace, and our maxim is to seeksolutions. As part of our efforts, weapply the World Bank’s EquatorPrinciples, which provide a bench-mark for assessing a project’s envir-onmental and social sustainability, to a growing number of businesssegments such as credit insurance.

For Munich Re, the CDM is thus morethan just a tool for reducing green-house gas emissions. Rather, it hasopened up a new field of business thatoffers enormous opportunities forgrowth and the development of inno-vative products. Our Kyoto Multi RiskPolicy is a key element in this context.The new business segment, which wewant to develop jointly with the policy-holders, has special appeal because itcombines traditional insurance prod-ucts with new protection against theuncertainty of carbon credit (CER)delivery. The policy covers the riskthat a CDM project might generatefewer carbon credits than expected.CDM projects are currently underwayin rapidly growing Asian economiessuch as China and India as well as inLatin America. As a global reinsurer,we can offer customised solutions forsuch projects.

Unlike the CDM market, technologytransfer to industrialised countriesunder the Joint Implementation (JI)mechanism still lacks momentum.However, JI is bound to become moreimportant in the years to come, sinceit offers additional opportunities toeffectively reduce emissions. With theknow-how from its Kyoto Multi RiskPolicy, Munich Re is ideally positionedto play a pioneering role in develop-ing insurance cover for JI projects.Risks thus become opportunities, inkeeping with our mission of “turningrisk into value”.

Dr. Thomas Blunck is a member of the Munich Re Board of Management. He isresponsible for Organisational Design and Development, IT and Special and Financial Risks.

We have the necessaryknow-how and proximity tothe marketplace, and ourmaxim is to seek solutions.

Experts featured in this issue

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Dr. Thomas BlunckMember of the Board ofManagement of Munich [email protected] 43

Dr. Michael BösChief Investment Officer, Reinsurance [email protected] 27

Dr. Oliver BüsseSenior Economist,Group [email protected] 10

Jürgen FischerHead of SustainabilityManagement, Group [email protected] 21

Alfred GaßnerHead of Department in Corporate Underwriting/Global [email protected] 6

Volker HorchConsultant, Special and Financial [email protected] 33, 38

Thomas HürlimannChief Executive Officer of European Corporate Business, Zurich Financial ServicesPage 6

Dr. Torsten JeworrekMember of the Board ofManagement of Munich [email protected] 16

Andrei MarcuPresident of the International Emissions Trading Association(IETA)Page 33

Vanessa SchonderSenior Underwriter, Corporate Underwriting/Global [email protected] 10

Dr. Gerhard WagnerHead of Socially Responsible Investments, UBSPage 27

© 2007Münchener Rückversicherungs-GesellschaftKöniginstrasse 10780802 MünchenGermany Tel.: +49 (89) 38 91-0Fax: +49 (89) 39 90 56http://www.munichre.com

Overall responsibility Corporate Communications

Editor responsible Karin Gross-Kaun (address as above)Tel.: +49 (89) 38 91-23 82Fax: +49 (89) 38 91-7 23 82E-mail: [email protected]

Picture credits Cover: Granser/laifp. 1: Carsten de Riese, Munichp. 5: Getty Imagespp. 7, 8, 32, 34, 37: Keystone, Zurichp. 11: Getty Images/Emmanuel Faurep. 14: Holland. Hoogte/laifpp. 17, 43: Claudia Kempf, Wuppertalpp. 19, 23, 26, 28, 29: Oliver Soulas, Munichp. 20: Lachenmann/Bruchhaus, Munichp. 24: Getty Images/Jerry Driendlp. 31: Photocase/Holger Weihep. 39: Redux/laifp. 41: Sinopix/laifp. 42: Glaescher/laif

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TopicsCycle managementClimate neutralityKyoto Multi Risk Policy

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