ILS seen playing major role in ESG investing
The insurance-linked securities asset class can play a major role in the future of environmental, social and governance investments, leading experts told an audience in Bermuda.
They were speaking at an ESG Breakfast hosted by Kroll Bond Rating Agency at Hamilton Princess & Beach Club.
Greg Wojciechowski, president and chief executive officer of the Bermuda Stock Exchange, was joined on a panel by Arthur Wightman, regional markets/insurance leader and territory leader, PwC Caribbean, and Ariane West, director of structured finance at Nephila Climate.
The panel was moderated by ILS Bermuda committee member and Appleby global partner, Brad Adderley.
Mr Wojciechowski said: “Much has been said and written about the global protection gap — those who are uninsured or underinsured — which is estimated at $180 billion. The greatest source of funds to address this gap is the capital markets.
“Increasingly, investors are directing their money towards ESG investments — something that is making a return and doing good for communities around the world. And ILS is a part, potentially a big part, of this future trend. ILS is helping communities prepare for and recover from storms, fires, droughts, epidemics and other disasters.”
Panellists said the global community had woken up to the “urgency of now” concerning climate change and is demanding that politicians and the corporate sector do better.
As an example, Mr Wojciechowski said that assets managed with ESG mandates by the 500 largest asset managers in the world rose by 23.3 per cent in 2018.
The US Forum for Sustainable and Responsible Investing’s recent report found that in 2018 sustainable, responsible and impact investing assets accounted for $12 trillion, or one in four dollars, of the $46.6 trillion in total assets under professional management in the United States.
Reflecting this shift in investor appetite, there has been a huge increase in the attention given to the ILS asset class being ESG compliant.
Mr Wojciechowski said: “Pension funds, in Europe for example, have identified ILS as ESG compliant and are increasing their investment in this sector. Many ILS vehicles are related to climate-driven events, hurricanes, wildfires and so on. By helping build resilience against these disasters, ILS fulfils the UN’s Sustainable Development Goal #13 — taking action on climate change.
“Bermuda is undoubtedly the epicentre for the creation, support and listing of ILS vehicles. We have the expertise and long history of being the ‘world’s risk capital’. The BSX is proud to be leading the ESG initiative in Bermuda and, with 80 per cent market share, is the exchange of choice for ILS listings from around the world.”
Ms West said: “Accelerating awareness of sustainability issues and emphasis on ESG priorities among the investor community has the potential to catalyse a fundamental shift in how the private and public sector engage with the challenges presented by increasing weather volatility.
“The re/insurance industry, with its core expertise in the analysis and quantification of risk exposure, is uniquely suited to the imperative task of accurately assessing the potential costs of climate trends.
“For the last 15 years, Nephila Climate has been dedicated to understanding and evaluating these risks and offering solutions to help mitigate them, increasing resilience and encouraging more sustainable approaches.”
Jim Nadler, KBRA’s chief executive officer, said: “We were very excited to host our inaugural ESG event in Bermuda and the great attendance was a reflection of the importance of ESG as it relates to ILS and insurance in general.”
He added: “As investor interest in ESG continues to grow, KBRA is actively analysing the changing dynamics of ESG factors and their relevance to credit to make our rating analysis more transparent and thorough.
“Attendees enjoyed an in-depth discussion on how ESG factors influence our insurance methodology and an informative panel discussion around ESG and ILS.”
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