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May 2020

Moody's says ESG risks increasingly affect insurers' credit profiles

Source: Middle East Insurance Review | Sep 2019

Insurers are increasingly exposed to environmental, social, and governance (ESG) risks, which can influence their ability to meet financial obligations and therefore affect their credit strength, said a Moody’s Investors Service report.
“ESG risks have become more significant for insurers in recent years due to evolving regulations and policy measures, climate change and shifting demographics,” said Mr Brandan Holmes, VP-senior credit officer at Moody’s.
“Climate change in particular gives rise to greater uncertainty for insurers, both with respect to expectations for frequency and severity of natural catastrophes, and exposure to carbon transition risk through their investment portfolios and the possibility of stranded assets.”
Insurers are also at the forefront of the movement towards sustainable finance because they control a significant portion of global investable assets, while at the same time provide risk transfer capabilities that are fundamental to the functioning of commerce and society.
Increasing focus on sustainable finance is shaping insurers’ behaviour, and a growing number are implementing ESG-focused strategies in both the investment and insurance underwriting sides of their business, including policies to exclude participation in thermal-coal dependent sectors.
Moody’s reflects ESG risk in its ratings by taking qualitative and quantitative ESG factors into account and considering them in its overall analysis of credit drivers. Non-life reinsurers are more vulnerable to environmental risk, and life insurers are more susceptible to social risks, such as higher disability claims related to the opioid epidemic in the US.
Insurers’ ESG exposure also varies by territory, due to differences in natural, regulatory and social features across regions. M 
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