The reinsurance market is “well-positioned” to meet the growing challenge of environmental, social and governance (ESG) risks, according to Carlos Wong, Senior Director at AM Best.
Speaking during AM Best’s virtual Reinsurance Market Briefing as part of this year’s cancelled RVS event, Wong acknowledged that the reinsurance industry faces a “big challenge” in trying to keep pace with growth and innovation in the broader economy.
ESG in particular has been a hot topic in the online discussions that have taken the place of the regular September convention for a second year running.
But while adoption and alignment with ESG standards is certainly a pressing issue for re/insurers, analysts at AM Best noted that these are hardly new factors for the market to consider.
“These are something that we have been including as part of our rating process with different names for a number of years,” Wong told attendees of the virtual briefing. “This is something that is in the top of the agenda of companies, and a topic for discussion with us regularly.”
Speakers at the briefing noted a general shift in the evolving economy towards a more intangible composition of assets, in which issues such as intellectual rights and reputation are becoming increasingly important for financial companies such as insurers and reinsurers.
Adjusting to this change is “difficult,” Wong granted, but he added that the reinsurance market already finds itself in a good position to adapt, given its track-record of innovation in terms of product development and capital efficiency.
“The way the sector has worked in the past, and is working now means it is well-positioned to assume those challenges,” Wong asserted. “It’s working with ILS markets and is inviting new sources of capital to participate in this more complex world … And part of that may involve not just innovation and new technology, but also companies trying to be closer to the risk.”
He observed that this trend of getting closer to the risk can be seen in reinsurers’ involvement with MGAs, insurtechs and data mining, as well as in a general desire to have a more proprietary view of risks.
Beyond this, recent events have touched on the possibility of more partnerships with public entities and governments to tackle systemic risks such as pandemic, potentially enabling the market to take on risks that would not have been under consideration in the past.
“We think that a combination of innovation, private and public partnerships, and third party capital can make some risks, which now are considered uninsurable or systemic, more likely to be included in the radar of companies’ strategies,” Wong remarked.
AM Best recently decided to issue a stable outlook for the global reinsurance sector, as improved pricing trends across most business lines were felt to be offset by abundant capital and ongoing uncertainty, following the COVID-19 pandemic and rising catastrophe losses.
