Rating agency AM Best has announced the addition of an environmental, social and governance (ESG) section to its Credit Reports under Enterprise Risk Management.
With insurance industry stakeholders increasingly seeking information about the impact of these risks, AM Best believes that the addition of an ESG section to its reports will help to promote transparency.
Analysts explained that the new section will highlight how ESG elements that are relevant and material to the financial strength of an insurance company and help AM Best to better evaluate how an insurer manages these ESG risks and opportunities.
“AM Best has always considered ESG risks in our credit rating analysis, when they were material and relevant to financial strength,” said Matthew C. Mosher, President and CEO of AM Best Rating Services.
In 2018, AM Best’s methodology was updated to identify factors within the ratings process that are considered ESG factors and how these may impact any one of the building blocks used to determine our credit ratings.
“The discussion of ESG factors in our methodology allows us to be more transparent as to how these risks impact our consideration of an insurer’s financial strength,” Mosher added. “The impact of ESG factors on financial strength varies depending on a company’s profile, exposures and level of risk transfer, as well as the markets in which it operates.”
At the same time, AM Best has released a new commentary addressing frequently asked questions about ESG considerations for financial strength and application of ESG within the rating process.
The FAQ document aims to help provide additional background and context, as well as addressing uncertainties over what ESG actually entails, and what actions or disclosures are expected from re/insurers.
