ESG Considerations for Insurance Company Credit Ratings
Gurdip Dhami
25 years: Treasury & ratings
In the last video of his series on ‘Insurance company credit factors’, Gurdip gives us an overview of how the rating agencies are currently incorporating ESG risks in their credit analysis and credit ratings.
In the last video of his series on ‘Insurance company credit factors’, Gurdip gives us an overview of how the rating agencies are currently incorporating ESG risks in their credit analysis and credit ratings.
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ESG Considerations for Insurance Company Credit Ratings
4 mins 58 secs
Insurers have both direct and indirect ESG exposures. All insurers are indirectly exposed to ESG risks through their investment portfolios. Fitch has the most transparent analysis of ESG risks in their ratings analysis.
Key learning objectives:
Understand the role ESG plays in credit ratings methodologies
Identify which ESG risks impacting insurance companies
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What is ESG? Explain ESG exposures?
The ESG stands for Environmental, Social and Governance. There are no ranking variables in any of the existing rating requirements that have the words "environmental" or "social" in their title. There are no ranking variables in any of the existing rating requirements that have the words "environmental" or "social" in their title. Life insurers are specifically exposed to societal threats, such as those related to ageing demographics and mis-selling. Non-life insurers are directly exposed to environmental threats such as hurricanes and earthquakes. Both insurers are indirectly exposed to ESG risk through their investment portfolios. For example, insurers investing in arms or coal-fired industries could have a negative impact on their market position and financial stability.
What are the commentaries that the three rating agencies have given to ESG analysis?
In recent years, all three agencies have made comments about how they integrate the ESG analysis into their credit ratings for all their industry sectors. Fitch provides the most straightforward ESG risk analysis of its rating analysis. Forward, the assessment reports for insurers as well as the insurance criteria for all three agencies would provide more information on the risks of the ESG. To date, ESG risk has not had a significant effect on credit ratings for most insurers. S&P reported in February 2020 that 11 percent of EMEA rated insurers had their credit rating directly affected by ESG risks.
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Gurdip Dhami
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