Analysis from Insurance Capital Markets Research (ICMR) underscores the pressing need for a comprehensive perspective on environmental, social, and corporate governance (ESG) factors within Lloyd's insurance and reinsurance sector.

ICMR observes that, while there is considerable ESG activity within Lloyd's, such as the recent launch of the LMA's ESG academy, much of the attention remains fixated on business transactions within the market, with less focus on the managing agencies' everyday operations.

ICMR remarks, "Until now, limited attention has been devoted to appraising the ESG standing of the owners of Lloyd's managing agents, many of whom are publicly traded entities with their own publicly accessible ESG ratings. Since these entities account for the majority of Lloyd's capital, this dimension demands a closer look."

The initial graphic to the right displays publicly traded proprietors of Lloyd's syndicates, along with the ESG risk rating assigned to the Lloyd's market.

According to ICMR's analysis, one of the compelling reasons to consider parental ESG ratings is that risk placement and acceptance should not occur in isolation. Consequently, if businesses or Lloyd's solely scrutinise the sources of risk to assess ESG ratings, they won't effectively integrate ESG into their routine business operations.

ICMR provides a second chart that illustrates the premium growth rates that Lloyd's has authorised for the same companies featured in the first chart over the past two years, juxtaposed with Lloyd's average for the same period.

ICMR says, "The parental ESG rating does not seem to have much of an effect on Lloyd's decision to allow syndicates to offer more premiums; in fact, some of the biggest growth percentages are given to syndicates whose parent companies have publicly available "high-risk" ESG ratings."

ICMR also points out that, given the significance of listed re/insurers to Lloyd's capital, this suggests that the market's current hierarchy has not yet embraced a comprehensive approach to ESG that encompasses all facets of the market.

Furthermore, ICMR underscores the importance of this topic, highlighting the reputational risk associated with it. ICMR notes, "If positive behaviours from Lloyd's extend to the parent (re)insurer, this would be a positive outcome. However, there is a risk that an unscrupulous parental (re)insurer could mask their own subpar ESG rating behind Lloyd's and their syndicate's more favourable rating, to the detriment of the market as a whole."

Finally, ICMR stresses that a complete approach that looks at internal business and managing agent behaviour and parental ESG ratings would quickly and clearly remove any worries about parental ESG underperformers trying to show they are ESG-responsible.

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To view and compare company ESG Ratings and Sustainability Reports, visit our Company ESG Profiles page.

Source: Reinsurance news