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US insurers ‘over-exposed to fossil fuels’

US general and life insurers’ have an investment in fossil fuel estimated to be worth nearly half a trillion dollars – a figure that’s is too “risky” in a world aspiring to a low-carbon future.

That’s the conclusion of a new report commissioned by Boston-based sustainability advocacy group Ceres, which examined the investments of the 40 largest US insurance companies including AIG, Prudential and Metlife.

It found they had $US459 billion ($636.48 million) invested in oil, gas, coal and electric/gas utilities at the end of 2014 – an amount roughly equal to the GDP of Norway.

In comparison they had invested just $US7.2 billion ($9.98 billion) in renewable energy.

The report highlights the volatility of oil and gas investments over the past two years due to low commodity prices.

“Just in North America, 69 oil and gas producers have filed for bankruptcy since the beginning of 2015 through May 2016,” it says.

Bond ratings for oil and gas companies have been downgraded in recent months and Standard and Poor’s has cut the ratings of Chevron and nine other oil and gas companies due to a decline in crude oil prices.

The report says insurers need to “begin a dialogue” with fossil fuel companies about their preparations for changing market dynamics, managing carbon asset risk and evaluating potential threats.

“Insurers need to know how the fossil fuel companies they are invested in are considering future demand shifts and to what extent there may be stranded-asset exposure,” said the report.

A 2015 study by investment consultant Mercer, cited in the report, concludes that investment returns for fossil fuels will be “the most negatively impacted” industry over the next decade, while renewable energy offers the greatest investment potential.

“Depending on the scenario, average expected returns from renewables may increase from over 6% to as high as 10% annually.”

In January California Insurance Commissioner Dave Jones called for the state’s insurance industry to divest from coal investments, and introduced a new requirement for disclosure of carbon-based investments.

Two weeks ago activist group Market Forces protested outside QBE’s offices in Sydney demanding it stop investing in and underwriting fossil fuel projects.