Majority of ESG-related ratings actions negative: A.M. Best

Some 69% of the global rating actions on insurers driven by environmental, social and governance factors were negative from April 2020 to March 2021, A.M. Best Co. Inc. said in a report Wednesday.

Weather-related events and governance were the most common drivers of negative ESG rating actions, followed by reputational risk, the Oldwick, New Jersey-based ratings agency said.

Where weather was the driver, this was due primarily to companies experiencing weather-related losses that were beyond their expectations, Best said.

“This was particularly true for small monoline insurers with geographical concentrations, such as companies exposed to floods or wildfire risk in a single U.S. state,” Best said.

Inadequate protection against weather-related losses could lead to the deterioration of the balance sheet or operating performance, Best said.

“Conversely, companies that exceed expectations and improve their operations – through strengthened governance practices, for example—may experience positive rating actions,” according to the report.

ESG was a key factor in just 13% of Best’s total global rating actions on insurers in the time period, the report said. Of those, 31% were positive.

Property-casualty insurers accounted for 85% of rating actions driven by ESG factors, and life/health insurers for 15%.

Of the rating actions driven by ESG factors during the period, some 72% were on companies domiciled in the U.S. because they account for the majority of Best’s rating population.