At the time of the adoption of the Paris Agreement, multiple parties (IAG, ClimateWise, AXA and Bank of England’s Mark Carney expressed similar messages) voiced their concerns that the effects of climate change might lead to an uninsurable world.
Last week, the Bank of Montreal (BMO) decided to wind down its reinsurance business as a result of higher costs and increased variability of climate risks, the Financial Post reports.
It is one of the first examples of climate change leading to a weakened balance sheet. That it concerns the cessation of reinsurance activities is all the more significant, as this is an activity designed to transfer and absorb both current and future climate risks.
While initial responses have been fairly understanding, BMO’s decision sets a questionable precedent for insurance as a risk management instrument, especially if other financial entities decide to follow BMO’s example.