@Pixabay.
Ways that insurance linked investments within the life and P&C insurance space can support institutional investors’ ESG and responsible investment goals is a topic that many in the insurance sphere will have to grapple with over the coming years.
In a recent Clear Path Analysis webinar, in association with Vesttoo, “Diversifying with Non-Catastrophe Insurance-Linked Assets” several panellists including Huayin Liu, Senior Investment Portfolio Manager, Aviva Investors, Nick Dixon, Former Investment Director, Aegon and Tom Sumpster, Head of Private Markets, Phoenix Group were joined by Robert Hauff, Portfolio Manager at Vesttoo, to discuss some of the big ideas around ESG in the market.
"There is a shift from how you can green your portfolio, towards how can
you help green the planet."
“For investments, ESG and data are going to be crucial for decisions,” said Sumpster. “The question is around products. Green bonds are the flavour of the day, but the definitions are not tied down and as a result, there is a greenwashing element.” With 67% of US insurers now incorporating the ethos, the vagueness of definitions, and its relation to greenwashing, will be an issue.
For other panellists, the webinar provided a chance for them to expand on wider ESG topics and how this is providing both opportunities and challenges to the insurance industry. “The focus has been on how we can make our portfolios more ESG and climate aligned,” said Dixon. “This includes divesting oil and gas and other unpalatable investments, but there is a shift from how you can green your portfolio, towards how can you help green the planet. Through the insurance space, with asset pools, insurers have scale and buying leverage with fund managers, and can use that to encourage the construction of ESG-aligned passive funds.”
"With insurance linked investments it is important to select insurance arrangers
and counterparties that have similar mindsets to you as an investor."
Dixon continued, saying that if you are an institutional investor, then it is possible to source vehicles below 5 basis points. “This started with global equity and now extends to ESG funds across regional equity and fixed income.” Insurances play a role in providing the capital, he added, and the minimum scale and buying leverage to get these ESG funds to be mainstream, low cost, and more accessible for retail investors.
Other panellists focused on how it is important to know those you work with and create a relationship if ESG goals are important to you. “With insurance linked investments it is important to select insurance arrangers and counterparties that have similar mindsets and approaches to you as an investor,” said Liu. This attitude of engagement could be key, as an S&P Global report revealed as that of year-end 2019, the last set of data available pre-pandemic, the US insurance industry had $582bn invested in some combination of oil, gas, coal, utilities and other fossil fuel-related activities, an increase from $519bn in 2018, meaning that the divestment/engagement debate will roll on and investors will need to understand where they stand.
"In the social aspect, investing in uncorrelated insurance-linked assets a
llows for diversification to counter market volatility."
The use of technology in the induction of ESG principles into investing was also seen as key to making it a profitable – and ethical – endeavour. “There is a benefit from technology from a quantitative aspect in ESG around the education and data transparency that it can provide in slicing into the underlying risk in different ways,” said Hauff.
“Furthermore, in the social aspect, investing in uncorrelated insurance-linked assets allows for diversification to counter market volatility,” he added. “Opening the ILS market to provide more capacity for reinsurance solutions for underserved parts of the market, as well as SMEs who couldn’t obtain coverage, has a stabilising effect on the global economy.”
