Six Re-Insurers Backs Away From the East African Crude Oil Pipeline

The world's largest re-insurer, Munich-Re, has become the latest re-insurance company to confirm that it will not provide cover for the East African Crude Oil Pipeline (EACOP), as pressure from the StopEACOP campaign gains momentum.

Munich-Re joins Hannover, AXA, Swiss Re, SCOR and Zurich that have already declared publicly that they won't insure the project citing environmental and social concerns.

"Some of you keep asking us if we (will) insure the East African Crude Oil Pipeline which is currently built in Uganda and Tanzania. The answer is: No, we don't. Insuring this pipeline would not go along with our Environmental, Social and Governance values and guidelines," the company said on its twitter handle on April.06.

The company said it has set clear decarbonization targets already in 2020 for its liabilities, investments and own operations, and that it is a member of the UN-convened Net-Zero Asset Owner Alliance and co-founded the Net-Zero Insurance Alliance in 2021, which include commitments to achieve net-zero emissions across its investment and insurance portfolios.

With these measures, Munich Re said it has taken a clear and science-based stance to support the Paris Climate Goals and are constantly monitoring their progress against the ambition and reporting transparently in their annual report.

"Beyond our reduction targets and exclusions, we conduct rigorous Environmental, Social and Governance assessments on large-scale projects," the company said.

"As a result, we have not insured the East African Crude Oil Pipeline project in our direct, facultative and primary business and already informed our underwriting community correspondingly about a year ago. Our existing frameworks underline our commitment to decarbonize accompanied by respecting high business ethics."

This comes as climate campaigners worldwide push financial sector including insurance firms to stop supporting or financing any projects in oil and gas.

The campaigners argue that that all new oil and gas explorations and harvesting must be stopped to keep the warming below a rise of more than two degrees Celsius since pre-industrial period.

Although the re-insurers decision to back away from the oil project is a win to climate campaigners including Uganda's Vanessa Nakate and Flavia Hilda Nakabuye, local insurers who have been eying a pie of the country's oil project for decades have been put in a tricky position.

This is because re-insurance companies are vital in the industry as they help share the burden of insurance risks by underwriting frontline insurers, and any restrictions they impose will always have a knock-on effect on insurance policies on offer to companies.

Alliteratively, local insurers could decide to work with re-insurance companies from probably China, India and Russia that may ignore fossil fuels and climate change concerns but this could rise premiums, experts say.

Uganda's insurance industry which boasts of 30 insurance companies and a one -reinsurer recorded slightly over a Shs1trillion last year in premiums although penetration remains less than one percent - one of the lowest in the East African Community.

The EACOP is a proposed 1,443km crude oil pipeline from Hoima in Uganda to the port of Tanga in Tanzania. The infrastructure will run alongside Lake Victoria basin, which is the continent's largest freshwater reserve and the source of the Nile River.

Currently, work on keystone oil and gas infrastructure projects is already taking shape in western part of the country following TotalEnergies and CNOOC step to sign off the Final Investment Decision (FID).

The east African nation, which discovered oil in 2006, hopes to produce its first oil in the first quarter of 2025.

Coleen Scott, Legal and Policy Associate at Inclusive Development International said 15 commercial banks have also renounced supporting the project.

"This is a remarkable number of institutions backing away, and with every new rejection, the controversy around this project continues to snowball. Soon it'll be too toxic for any bank or insurer to touch."

Regine Richter, energy and finance campaigner with Urgewald said the nearly 50 years of warning against climate change needs to translate into concrete action. "Not re-insuring new oil and gas projects is a crucial starting point," she said.

Industry remains sound

However, Sande Protazio, the director research and market development at the Insurance Regulatory Authority of Uganda told The Independent that there's no need to worry for the local insurers though local insurers and re-insurers alone are unable to handle the huge risks associated with oil and gas explorations.

"The re-insurers decision not to cancel interest in covering oil and gas projects is a business decision and there's nothing that the regulator can do," he said.