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Non-business risks crucial to credit ratings

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Environmental, social and governance (ESG) risks are becoming more significant in determining insurers’ credit ratings, Moody’s says.

Such risks are not new, but regulators, investors and customers view them as important issues that insurers must manage effectively.

“They have become an area of strategic focus for many global insurers as awareness of and access to information on key sustainability trends grows among regulators, investors and consumers,” the ratings agency says.

“This is consistent with our view that the industry recognises the potential for ESG issues to affect investment and underwriting outcomes, and is increasingly committed to assisting in the development of a more sustainable economy.”

Moody’s says ESG considerations feature in its credit analyses of insurers.

Property and casualty (P&C) insurers are more vulnerable to environment risk than life insurers. This multi-faceted risk covers air pollution, soil and water pollution and land use restrictions, carbon regulations, water shortages, and natural and man-made hazards.

“P&C (re)insurers are also affected by longer-term climate trends, or gradual, multi-decade (or multi-century) climate phenomena that may not be discernible from one year to the next.

“These include rising mean temperatures globally, and other changes such as a decrease in cold temperature extremes and a rise in warm temperature extremes. Climate trends are distinct from climate shocks, but they are interconnected.”

Governance risks affect life and non-life insurers equally.