Best's Review


The Greening of Insurance Asset Management
The Push for Responsible Investing

From the United Nations to nations and states, regulators and representatives are aligning investing standards with concerns about climate risk and social responsibility. Insurance and asset management experts explore emerging standards and expectations, along with the strategies and products designed to lower the stress of complying.
  • Meg Green and John Weber
  • May 2021
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The insurance industry controls trillions of dollars of assets, mostly invested in low-profile, stable monetary vehicles that fly under the radar. But these investments now are attracting greater scrutiny related to their impact on environmental, social and governance issues.

The so-called ESG movement—which involves regulators, social and environmental activists, and even the broader public—is shaping industries across the world. Asset management, banking, venture capital, energy and manufacturing businesses have joined insurers working to balance financial needs with all three aspects of ESG.

Chris Fowle Principles for Responsible Investment

I think in 10, 15 years you’ll see ESG ultimately become something that people just think about as good investing.

Chris Fowle
Principles for Responsible Investment

Job No. 1 for insurers is to maintain sufficient financial strength to satisfy obligations to policyholders. In other words, they need enough available capital to pay claims. Insurers traditionally have sought investments that offer sufficient returns and appropriate risks. For centuries, those investments included energy, carbon-based fuels, weapons, tobacco and industries now associated with human rights concerns or other sensitive issues.

Many insurers have begun altering their investment practices to avoid areas that have fallen out of favor in recent years, but a growing body of regulators, legislators, activists and other stakeholders is applying significant pressure to incorporate ESG in all areas of the business.

Inflection Point

Many insurers see their choice of investments as a key element in meeting ESG standards. Political changes are amplifying that focus, said Sean Kevelighan, president and chief executive officer of the Insurance Information Institute.

Most of insurers' revenue comes from investments, which can be a great tool for building communities, Kevelighan said. “You are beginning to see companies proactively look at their portfolios and see whether or not there are ways they can address the issues through their investments,” he said. “You're also seeing companies find ways to help their customers with the risks that are increasing too, beyond just our own investments.”

The industry has reached an important inflection point where it is going from a detect-and-repair focus to one of predicting and preventing catastrophes, Kevelighan said. Investments play a decisive role in that approach, as does being part of the broader conversation around ESG, he added.

“We're seeing, with the new administration coming into Washington, that climate is part of virtually everything in that administration. Being part of those discussions, making sure people understand how insurance can be a solutions provider, making sure that people understand what risk-based pricing is and why it matters so much. It's a lot for us to do in the climate area, even above and beyond investments,” Kevelighan said.

Sean Kevelighan Insurance Information Institute

We’re seeing, with the new administration coming into Washington, that climate is part of virtually everything in that administration.

Sean Kevelighan
Insurance Information Institute

Rising Regulation

Insurers soon will be subject to broader regulatory pressures, according to David Sampson, president and CEO of the American Property Casualty Insurance Association.

“I think there will be a whole raft of new regulations on ESG-related issues coming from the Securities and Exchange Commission, the Fed, and other regulators on public companies,” said Sampson. “All of that's going to have an impact on what happens at the state level among regulators, that is likely to sweep in nonpublic companies, mutual companies and other forms of insurance organizations.”

The National Association of Insurance Commissioners is sharpening its focus on ESG issues in general, noted NAIC President and Florida Insurance Commissioner David Altmaier. Another regulatory priority for 2021 is the Natural Catastrophe and Climate and Resilience Task Force, which it formed last year.

“The NAIC has always been involved in climate-related risks and natural catastrophes,” Altmaier said. “What we did last year was elevate that to what we call our executive level. Bringing some more commissioner-level attention to that issue and exploring ways that we can make our communities more resilient and make our insurance sector more responsive to natural catastrophes and thereby protect the consumers that rely on them.”

David Sampson American Property Casualty Insurance Association

I think there will be a whole raft of new regulations on ESG-related issues coming from the Securities and Exchange Commission, the Fed, and other regulators on public companies.

David Sampson
American Property Casualty Insurance Association

A Global Perspective

A major driver of the increasing emphasis on insurers' investments is Principles for Responsible Investment, the organization that describes itself as a United Nations-affiliated international network of investors working together to implement its six aspirational principles. PRI began operating in 2006.

It was incubated within the U.N. as a grad student project during Kofi Annan's tenure as secretary-general. It later was spun into a standalone nonprofit with headquarters in London. The U.N. supports PRI via two advisory board seats. “Otherwise we're completely independent from the U.N.,” said Chris Fowle, director of the Americas for PRI. “There are no budgetary connections or administrative connections.

“For those that follow the science and understand that climate change is real and it's having an impact on our environment and therefore on humans, then I think someone could recognize that these issues will have an impact on investment returns as well,” Fowle said. “In many markets around the world, that recognition sort of transcends politics. There are really important sectors that are impacted by climate change, by enhanced recognition of environmental factors, in fact, affecting valuations.”

For example, he said: “There will be an important recognition that some companies will be making the transition to a low carbon economy better than others, therefore potentially creating better returns for their investors than others.”

It's important for investors to understand how companies are responding to different environmental issues, he said.

“Clearly there are opportunities,” Fowle said. “If you think about companies that might have a product or service that enhances a company's ability to successfully make the transition to a low carbon economy, then there should be a financial return and opportunity associated with that.”

PRI's goal, as an organization that supports investors making decisions around material ESG factors, is to provide evidence, tools and a framework for recognizing these issues and opportunities to change investment processes, and ultimately help investor signatories be more successful at achieving good returns for their stakeholders, Fowle said.

Liberty Mutual Signs On

Liberty Mutual became the first U.S.-based property/casualty insurance organization to sign on to the PRI's principles. The insurer is joined by MassMutual and Unum, part of a growing global list that includes insurance organizations such as AXA, Hannover Re, Munich Re, Swiss Re and others.

The principles are a good fit for Liberty Mutual, said Patrizio Urciuoli, executive vice president and co-head of strategy and asset allocation at the company.

“I'm very, very excited to see how ESG is playing an increasingly important role in our investment strategy,” Urciuoli said. “Responsible investing has always been part of our business. It's an integral part of our company's purpose. In fact, we do strongly believe that insurance, at the core, is a socially responsible product.”

As a global insurer and investor, Liberty Mutual has a broad set of opportunities to address environmental, social and governance considerations, said Urciuoli. The company also believes it is building a holistic approach to ESG that will withstand the constantly changing global environment, he added.

Indeed, signing on to PRI was more a formality than a shift, Urciuoli said. “The signing itself didn't really change the business, didn't really change the way we make investment decisions. In fact, becoming a PRI signatory has been building off our existing strategic approach to ESG. We have been incorporating these six principles in every aspect of our business decision process,” he said.

“I think about the six principles for responsible investments, which commit, basically, to incorporating ESG in all your investment analysis and decision-making processes. You commit to be an active owner. You seek appropriate disclosure. You promote acceptance, implementation of those principles. You commit to enhance and make more effective those principles. Then you finally commit to report on your activity and the progress you are making toward this implementation.

“All of those are just a natural evolution of incorporating the principles into something that is really the next step for us. That's why it became a very natural progression to our current strategy.”

Growing Ranks

The number of PRI signatories continues to grow, according to Fowle, fueled in part by insurers and the organizations that manage their investments.

PRI estimates it has about 130 general insurance company signatories globally, with more joining each week. In addition to Liberty Mutual and MassMutual, RGA and CNO recently signed on.

“We're in talks with a number of others. That's not mentioning their insurance company investment management affiliates. You've got Nuveen, for example, with TIAA,” Fowle said. “All of the New York Life investment management affiliates are signatories now. It's not an obligation use, but it's an opportunity to work with some of those signatories that have been doing it for a while, to collaborate on how to improve practices and progress up the curve.”

Revised Focus

PRI has learned to put the emphasis on insurers' general accounts, which are funded by premiums and support the broader business, rather than on ancillary investment accounts, said Fowle. In the past, the investment management affiliates could sign up independently and separately from their corporate group parents. Now, PRI requires the general accounts to sign up first.

“We view the asset owners as key to the investment chain in terms of creating a sustainable financial system. They're the ones ultimately that have control over the funds, and therefore they can work with and direct their investment managers to do ESG, if you will,” Fowle said.

A Matter of Survival

Pressures on insurance investment managers are more than conceptual. Companies need to make a solid return on equity and move to a broader asset allocation, into some nontraditional, more-value-based strategies and away from some of the core fixed income that has been a stalwart of the industry for decades, according to one insurance investment veteran.

“There will be pressure on the ESG side, but I think the primary pressure moving insurance investment allocations is the need for profitability and survival,” said Stewart Foley, founder of Insurance AUM and editor-in-chief of the Insurance AUM Journal. “You've seen major insurance companies sell their life books because, given their regulatory environment, they can't fund it. Those blocks of business are going to folks who have a less-restricted, broader opportunity set for investments.”

Values in Action

Pursuing values-based investment has spurred ongoing changes at Liberty Mutual, Urciuoli said.

As part of its climate strategy, the company is transitioning to a low carbon economy. It has been focusing on three things: gradually divesting from traditional energy and fossil fuel; strengthening its sustainable investment portfolio; and integrating climate consideration in its investment decision process.

“What does it mean? Let me give you some practical examples,” Urciuoli said. “In 2020 alone, we more than doubled our investment and commitment to renewable resources. We have been selling all our remaining thermal coal royalties. We partnered with Jupiter [which provides predictive data and analytics for climate risk], which will help us identify, mitigate and manage climate-related risk. We implemented a very solid energy transition strategy.

“We are very excited about the investment opportunities that are in front of us in the space. Those examples are just part of a much longer journey. They align very well, for example, with the coal policy that we introduced in December 2019 and align very well with our commitment to do our part to support our transition to a zero-carbon economy.”

Principles, Not Rules

PRI principles allow for latitude in terms of execution and timing, Fowle said.

“Think of us as a framework and a set of principles that allow investors to think through how they approach ESG,” Fowle said. “We'll never be prescriptive and say 'You can invest in this, and you can't invest in that.' There really isn't anything that's PRI-compliant per se. More broadly speaking, there's been a lot of research around material ESG factors and whether or not they have an impact on valuations.”

In particular there is good academic evidence, he said, that shows companies that take ESG or sustainability issues into account perform better financially. Public equities, for example. Depending on an investor's strategy and process, they may be able to achieve outsize returns if it recognizes those factors and chooses companies that are doing better on sustainability issues.

Fowle sees a limited time during which ESG-related issues will be considered the next big idea.

“There's a lot of recognition around issues like climate change or social issues related to COVID that are starting to impact valuations,” Fowle said. “As people start to understand those dynamics, I think in 10, 15 years you'll see ESG ultimately become something that people just think about as good investing. … It'll just be a gradual process of education that's being pushed along by increasing recognition from regulators that these are important issues that they would also like to see investors make more progress on.”

More Regulatory Consultation Ahead

Regulators have traditionally kept an eye on insurers' investing practices, and that focus will sharpen, said Washington state Insurance Commissioner Mike Kreidler.

“We've got to do a better job of helping to make sure that they clearly understand which [investments] are going to be looked on favorably,” Kreidler said. “Insurance regulators have always been, should be, and are, very, very conservative in the investment portfolios that are permitted by the insurance industry. That's made us look very well when we went through the '07-'08 debacle, financially with the Great Recession. Insurance did quite well.”


“That's what we've got to make sure of as we look at reinvestments as they come up, that we're open enough so they have that opportunity to make those investments in a timely fashion—not looking at what was permitted 20, 30, 40 years ago, but looking at what's going to be offered in the next decade,” Kreidler said.

Meg Green and John Weber are senior associate editors. They can be reached at and

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