Governance is an issue growing in importance for insurance companies in the Asia-Pacific region and outweighs environmental risk, a new report from S&P says.

S&P has just published its first-ever series of ESG (Environmental, Social, Governance) report cards for the insurance sector.

The ESG factors materially influence about 5% of S&P’s credit ratings on insurers in the Asia-Pacific.

“Governance is increasingly important to maintain public trust,” the ratings agency says. “This factor is more likely to be a negative drag for insurers in the region, as reflected in recent examples of regulatory intervention or breakdowns in risk management culture and compliance standards.”

It points to the example of AMP Life, where governance concerns in the fallout of the financial services royal commission weakened credit quality and the brand damage undermined its business profile, with high asset management outflows.

Direct risks and opportunities for insurers lie in treating customers fairly, ensuring proper governance and transparency and enabling gender equality in the workforce, the ratings agency says.

Indirectly, insurers also assume their counterparties' exposure to risks through their investment portfolios and insurance liabilities. In many cases the indirect sources of ESG risk can be more material than the direct sources.

S&P says environmental risk mostly influences property reinsurance, though the recent bushfires in Australia underline broader climate change risks.

Social factors are more relevant to life and health insurers' creditworthiness, “given their susceptibility to demographic changes, such as consumer behaviour, mortality and morbidity trends”.

It also highlights IAG’s work in balancing equitable customer outcomes around coverage and affordability under increasing community and regulatory expectation and scrutiny.

QBE’s exposure to ESG is assessed as moderate, with social risks broadly in line with global multi-line peers, although catastrophes and adverse large risk claims experience mean the insurer may be slightly more affected by environmental issues than other higher-rated global multi-line peers.

“We view QBE's risk management and risk culture positively, with appropriate investment in monitoring systems and controls,” S&P says. “Its governance framework is well developed.”

Suncorp Group's environmental and social risk factors are assessed as aligned with its peers, as are corporate governance practices.