Large weather-related losses for property and casualty (P&C) insurers highlight increasing environmental physical risks many experts link to climate change. In response, we expect P&C (re)insurers to increase premium rates and, in some cases, pull back from the market as underwriting risks increase and become more unpredictable, says Fitch
London:
Insurers’ underwriting and investment strategies in the coming years will be increasingly influenced by ESG considerations, Fitch Ratings says in a new report.
Evolving strategies could gradually reshape some insurers’ credit profiles, potentially with implications for ratings.
Large weather-related losses for property and casualty (P&C) insurers highlight increasing environmental physical risks many experts link to climate change. In response, we expect P&C (re)insurers 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. Life insurers will be more affected given the longer duration of their portfolios.
Environmental risks have been in the spotlight this year due to several devasting windstorms and wildfires, but social risks, such as the mis-selling of investment-oriented products, and governance risks, for example, intra-group transactions, are also important ESG considerations for insurers.We expect the sector to continue insuring industries with high environmental risk as these industries adapt to become more sustainable.
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.