Managing Risk in a Carbon

Constrained World

Presentation of

Christian Mumenthaler,

Chief Risk Officer, Swiss Re

Ruschlikon, Switzerland

5 November 04

Page 2

Agenda Swiss Re

– Our Strengths

The risk of climate change

– Awareness of Risks

– What does the Loss Data Reveal?

– Why should the Insurance Industry Care?

What is Swiss Re doing? - Working towards solutions

– Research and Development

– Raising Awareness

– Sustainability is a Core Value

– New Products and Services – the facilitation of GHG emissions reductions

Page 3

Swiss Re

Founded in 1863, Zurich, Switzerland

Operating in 70 offices in 30 countries

Approximately 8,000 employees

In assets, CHF 185 billion (June 30, 2004)

In revenues, CHF 36 billion in 2003

World’s second largest reinsurer overall

– Largest Life & Health reinsurer

– Second largest P&C reinsurer

Page 4

Geographical Diversification

35%55% 10%

40%51% 9%

Origin of free traded reinsured risks 2003

Swiss Re’s gross premium written by regions 2003

Source: Swiss Re, Economic Research and Consulting; Swiss Re Annual Report 2003

Page 5

Reinsurance - We are at the end of the risk chain!

Many of the world‘s risk end up on our balance sheet

Monitoring the risk landscape is one of our core activities

Page 6

Climate Change is in evidence – observed warming

Temperature increase of 0.6° C – the fastest rise in 1000 years

Atmospheric concentration of CO2 rising since 1750

sigma No. 1/2004Natural catastrophes andman-made disasters in 2003

Page 7

If you don’t believe figures, you may believe pictures

1870 Rhone Glacier, Wallis, Switzerland 1999

Page 8

Nat Cat losses worldwide 1970-2002 (price level 2003)

0

20'000

40'000

60'000

80'000

100'000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

year

mio

USD

Economic lossInsured loss

Swiss Re Sigma 2003

What does loss data reveal?

Page 9

Extreme weather events expected to increase in frequency

Projected changes during the 21st century in extreme climate phenomena

Likelihood

Higher maximum temperatures and more hot days over nearly all land areas Very likely

Increased summer continental drying and Likely, over most mid- latitude associated risk of drought continental interiors

More intense precipitation events Very likely, over many areas

Increase in tropical cyclone peak wind intensities Likely, over some areas

Increased intensity of mid-latitude storms Little agreement between current models

Very likely : 90–99% chanceLikely: 66–90% chance

Source: IPCC Third Assessment Report – Climate change 2001Source: Swiss Re, sigma No. 1/2004

Page 10

What is Swiss Re doing? -Working towards solutions

Research and Development

Raising Awareness

Sustainability is a Core Value

New Products and Services – the facilitation of GHG emissions reductions

Page 11

Research and Development:Climate change futures project

Page 12

Swiss Re tries to raise awareness

Global warming: element of risk (1994)

Climate research does not remove the uncertainty – Coping with the risks of climate change (1998)

Opportunities and risks of climate change (2002)

Water availability (2002)

The Insurability of Ecological Damage (2003)

Wind/flood Japan – in search of sustainability (2003)

Large Dams (2003)

Tackling climate change (2004)

Long-established and proven expertise

Extensive research and focused innovation

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Sustainability is a core value

Executive Board “Top Topic”

Reflected in:

– Our buildings and operations

– Our interaction with government/regulators

– Events – this is our 4th GHG event in Ruschlikon

Reducing our own environmental footprint

– ‘’Greenhouse Neutral” Swiss Re Pledge

- 10 years

- 15% internal emissions reductions;

- 85% offset via the World Bank Community Development Carbon Fund (CDCF) which supports projects in least developed countries

Page 14

New products and services:Swiss Re and the GHG emissions market

Greenhouse Gas Risk Solutions

Developing financial tools to mitigate/hedge market and performance risks

–Third Party Asset Management/investment related solutions

–Renewable/alternative energy (reinsurance/structured finance

-wind, geothermal etc.

–Clearing and delivery guaranty insurance

Evolutionary: Development ecosystem services markets

–Footprint neutral products – consumer/company offsets

- Collaborative effort with the UNDP, The Nature Conservancy and Conservation International to be launched in January 05

GHG Emissions reductions market development–Risk assessment and management

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Linking Climate Change to corporate governance

Climate as a corporate board risk management issue – Preparation for the impacts of climate change?

– Reporting - “material events and uncertainties”; Sarbanes-Oxley

– Carbon Disclosure Project (institutional investors representing ca. USD $9 trillion in assets) In 2003:- 80% Global 500 CEOs acknowledge risk; 35-40% acting

– Shareholder resolutions - In 2003 - 32% at Chevron, 22% at Exxon, 27% at AEP etc.

- For 2004; >25 in energy, utilities, automotive sector as well as the insurance industry

Implications for D&O insurance– Non-action potentially affects shareholder value

– Swiss Re policy (upon policy renewal): 1. Check response of company to CDP;

2. If inadequate/non-responsive – send questionnaire

– Goals: Raising awareness and evaluation of underwriting exposure