Extreme weather events are pushing up the cost of reinsurance: this is the message from the chief executive of Lloyd’s of London. Insurers are having to change the way they assess climate risk. More often than not, this means higher prices, and withdrawing from areas that are increasingly affected by climate change. Governments are ‘insurers of last resort’. Where private insurers retreat, governments will have to step in. But as climate risks propagate, bond markets will question whether this is really sustainable.
A divided world will make it more difficult to tackle common challenges, notably climate change. Cooperation is critical in a more shock-prone world, but the world is becoming more fragmented. Globally, economies should be benefitting from China’s overexpansion in batteries, EVs, solar and wind, which has helped to drive down prices. But fears are growing, that China’s competitive advantage will come at the expense of domestic industry. In European car showrooms and the European parliament, the tension is palpable.
The renewables transition is hitting significant speed bumps. Offshore wind is one of the big casualties from the shift away from secularly low interest rates. The slide in the share prices of European wind companies this year is telling. This is not a UK-specific problem: Orsted is facing a $2.3bn impairment loss on its US projects. Wind developers are warning governments globally, that they are not providing enough support to offset their rising costs. Many projects now are simply not viable.
Oil prices continue to climb, with WTI crude up 8.8% YTD. Saudi Arabia is pushing for $100/barrel, whilst China imports cheap oil from Russia. A squeeze higher in oil prices, in the year before the US election, would play hugely into the hands of Donald Trump, and other populists globally.
