PCAF aiming to launch expanded version of insurance standard in H1 2025

The Partnership for Carbon Accounting Financials is planning to release the second version of its insurance-associated emissions standard in the first half of 2025.

The work on the second version will focus on treaty reinsurance and construction all-risk/erection all-risk cover, according to Marco Tormen, managing consultant at Guidehouse and head of the Partnership for Carbon Accounting Financials' (PCAF) activities in Europe and German-speaking countries. These two areas are "two of the most important parts which were not included in the first version of the standard," Tormen said in an interview.

PCAF, which sets greenhouse gas emission accounting standards for financial institutions, released the first version of its insurance-associated emissions standard in November 2022. The organization announced Jan. 16 that adding insurance products to its standard was among its priorities for 2024. PCAF said in the text of the first version of the standard that it was looking to define a method for attributing emissions to treaty reinsurance.

PCAF's insurance-associated emissions standard gives the insurance industry a consistent way to measure the greenhouse gas emissions in underwriting portfolios, so insurers and reinsurers can track progress on their targets to achieve net-zero underwriting by 2050.

The first version of the standard covered most commercial lines of insurance and by extension facultative reinsurance for these lines, as well as personal lines motor. Treaty reinsurance, insurance bought by public entities, non-motor personal lines, life and health, construction all-risk/erection all-risk and structured trade credit were among the areas not covered by the first version.

Treaty reinsurance is a large omission because it makes up the bulk of reinsurers' business. It covers whole portfolios of risks written by insurers. Facultative reinsurance, by contrast, covers individual policies or small groups of policies and so is more similar to primary insurance.

When releasing version one of the standard, PCAF explained that it had excluded treaty reinsurance because of the difficulty in obtaining data and attributing emissions to the reinsurer, particularly for those treaties covering events or multiple events rather than individual risks.

While noting that treaty reinsurance was challenging and that it would take a lot of discussion among the working group developing the standard to arrive at something that works for everyone, "I feel confident that the working group will come up with a solution," Tormen said.

The first version of the standard was developed in conjunction with a working group of 16 global insurers and reinsurers, including European insurers AXA SA and Allianz SE, Japanese insurers Sompo Holdings Inc. and Tokio Marine Holdings Inc., and US insurer Liberty Mutual Insurance Co.