Net-Zero Commitments: Who Will Insure Canada's Oil and Gas Industry and Potential Credit Implications

Insurance companies globally are scaling back insuring developers and producers of fossil fuels. This growing trend is a consequence of the insurance industry responding to regulatory and public pressure to reduce its exposure to large emitters of greenhouse gases, most notably the producers of fossil fuels.

Key highlights include the following:

-- In an effort to do their part in the fight against climate change, global insurance companies are scaling back insuring developers and producers of fossil fuels.
-- Key risk-mitigation tools for Canadian oil and gas operators that are unable to attain cost-effective insurance include strong balance sheets and sufficient liquidity sources that will allow them to self-insure much of their activities.
-- DBRS Morningstar considers the mitigation efforts of the Canadian oil and gas companies as sufficient to counterbalance the higher credit risk associated with the challenge of sourcing insurance coverage.
-- Insurers’ net-zero policies are credit-neutral, although the impact on reputation may play an increasingly significant role for credit ratings in the future.

“Canadian oil and gas companies are adapting to the risks of global insurance companies withdrawing from insuring their oil and gas activities, particularly companies with more carbon-intensive oil sands developments. Industry scale, in our view, is critical in managing this risk as companies with scale can better self-insure their activities,” said Victor Vallance, Senior Vice President, Natural Resources & Pipelines.

“Net-zero policies are becoming a more important factor affecting insurance companies' reputations, but DBRS Morningstar views them generally as credit-neutral at the present time,” said Nadja Dreff, Senior Vice President, Insurance.