ESG increasingly influencing insurers’ strategies – Fitch

Written by Michael Griffiths

02/11/2022

Insurers’ underwriting and investment strategies are to be increasingly influenced by ESG considerations in the coming years, a new report from Fitch Ratings has stated.

The credit ratings agency suggested that evolving strategies could gradually reshape some insurers’ credit profiles, potentially with implications for ratings.

According to Fitch, large weather-related losses for property and casualty (P&C) insurers have highlighted the increasing environmental physical risks that many climate experts link to climate change.

In response, Fitch is expect P&C insurers and reinsurers to increase premium rates and, in some cases, pull back from the market as underwriting risks increase and become more unpredictable.

Climate-related transition risks are likely to reduce returns on assets related to carbon-intensive industries held in insurer investment portfolios, and will therefore influence insurers’ investment strategies. The Fitch report also note that life insurers are to be more affected, given the longer duration of their portfolios.

“We expect the sector to continue insuring industries with high environmental risk as these industries adapt to become more sustainable,” Fitch stated. “However, the worst-affected businesses and households may also need access to new government insurance schemes, and some may eventually struggle to obtain insurance.

“EU-based insurance groups are leading the sector’s integration of ESG into management decisions. However, it is difficult to truly compare and measure insurers’ adherence to ESG principles due to different taxonomies and interpretations of E, S and G.

“Efforts to harmonise international sustainability disclosure standards are a positive development, but much will hinge on how national authorities interpret and implement the international standards, and the extent to which ‘greenwashing’ and ‘social washing’ practices continue.”

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