Environmental risks are biggest ESG factors for insurers and reinsurers, especially in Asia-Pacific, Fitch heat map reveals

Environmental risks are the biggest ESG factor for insurers and reinsurers, and Asia-Pacific is the region of most concern.

That’s the view of ratings agency Fitch, which has launched a “heat map” covering environmental, social and governance (ESG) issues.

“The environmental impact associated with the frequency and severity of weather events is the most relevant ‘environmental’ risk category for influencing credit ratings, particularly for re/insurers,” said Fitch.

The agency added: “However, we expect the impact of changes associated with the transition to a lower-carbon economy will increase over time. This is likely to lead to a broader range of environmental risk categories increasing in relevance as credit rating drivers, for a greater breadth of financial institutions."

For re/insurers, and more specifically property and casualty (P&C), exposure to environmental impacts is a common risk factor, said Fitch, which added: “However, if actual or increased exposure to natural catastrophe losses led to a change in rating, outlook or watch for an entity, this would be viewed as a highly relevant environmental impact on the overall credit rating.”

Fitch assessed factors on a scale of one to five. Very few score above a 'three'. However, many of the exceptions were re/insurers operating within the APAC region. “This is due to the multiple hazards affecting the economies – e.g. earthquakes, tsunamis, cyclones, flooding," said Fitch. The Japan non-life group scored a 'four' for exposure to environmental impact.

One example is Mitsui Sumitomo Insurance, which expects its combined ratio to rise to 100 percent at the end of 2019, due to higher than expected incurred losses from domestic weather-related losses, such as Typhoon Jebi, Typhoon Trami and flooding in July. In 2018, the group’s earnings were affected by the loss incurred from hurricanes Harvey Irma, Maria and Mexican earthquakes affecting its subsidiaries.

Looking beyond APAC, Fitch said that Lloyd’s of London has greater catastrophe risk exposure than peers, although it has been actively managing this down over the past 12 months. It scored a four on the one to five scale.

Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

Telematics specialist Trak Global seeks rapid growth in North America

Marsh snags AIG, Aon senior executives in FINPRO build-out strategy

Cyber risk insurtech sets out to tackle 'silent cyber' with new approach; raises $5.5m

AXIS Insurance names new chief claims officer

New Dawn Risk strengthens team with senior Paragon hire

Feature:  10 ways insurers are using insurtech to drive new business