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ICMR calls for holistic approach to ESG at Lloyd’s

11th October 2023 - Author: Luke Gallin

Analysis by Insurance Capital Markets Research’s (ICMR) highlights the need for a holistic approach to environmental, social, and corporate governance (ESG) within the Lloyd’s insurance and reinsurance marketplace.

ICMR notes that while there’s a lot of activity around ESG within Lloyd’s, including the LMA’s recently launched ESG academy, much of the focus is still on inwards business placed at the market, with less attention given to the day to day operations of the managing agencies themselves.

lloyds-esg-ratings-icmr“To date, little emphasis has been placed on the ESG rating of the owners of Lloyd’s managing agents, most of whom are publicly listed and have their own publicly available ESG rating,” says ICMR. “As these account for the considerable majority of Lloyd’s capital, this seems an important dimension not to be overlooked.”

The first chart on the right lists publicly traded owners of Lloyd’s syndicates, and the Lloyd’s market, by their ESG risk rating.

One of the reasons it’s important to also consider parental ESG ratings, according to the analysis by ICMR, is that placing and accepting risk is not something taken in isolation. Therefore, if businesses or Lloyd’s only pay attention to risk sources to evaluate ESG rating, neither will be truly embedding ESG within their own business as usual operations.

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The second chart provided by ICMR depicts the rates of premium growth Lloyd’s authorised for the same firms in the first chart over the last two years, alongside the Lloyd’s average for the same period.

icmr-esg-premium-growth-2022“The parental ESG rating appears to have little bearing on Lloyd’s authorisation to grow syndicates’ premium footprints with some of the largest percentage growth being granted to syndicates whose parents have publicly available “high risk” ESG ratings,” notes ICMR.

ICMR adds that given the importance of listed re/insurers to Lloyd’s capital, this suggests that the marketplace’s current hierarchy has yet to develop a holistic approach to ESG across all dimensions of the market.

Another reason for the importance of this topic is the reputational risk, explains ICMR.

“If beneficial behaviours from Lloyd’s propagate within the parent (re)insurer, then that can only be a good outcome. But the risk remains that an unscrupulous parental (re)insurer could hide their own poor ESG rating behind Lloyd’s and their syndicate’s better rating, to the detriment of the market as a whole,” says ICMR.

Concluding that, “A holistic approach which took into account not just inward business and managing agent behaviour but also parental ESG rating would quickly and clearly refute any risk of parental ESG underperformers greenwashing their results.”

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