Best's Review


The Greening of Insurance Asset Management
Smaller and Midsized Insurers Negotiate a Complex Investment Landscape

Not all insurers have the resources to deploy across a range of investment opportunities designed to address changing standards and expectations. Insurance and investment experts explore how insurers of all sizes can better meet emerging guidelines without sacrificing business objectives.
  • Meg Green and John Weber
  • May 2021
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As insurers respond to demands for greener investing, they are learning the historical trade-off between values and profit is diminishing, but regulation remains an obstacle.

“There is this misconception, as investors in general, that in order to integrate environmental, social and governance factors, you have to sacrifice investment return,” said Patrizio Urciuoli, executive vice president and co-head of strategy and asset allocation, Liberty Mutual. “At Liberty, we believe that ESG integration is about strengthening and enhancing our already solid investment process.

“Taking into consideration material environmental, social and governance factors can only contribute to generating better and superior long-term risk-adjusted return, which at the end of the day is what we as asset managers and asset owners should do.”

Stewart Foley Insurance AUM

I think the misconception is that you need to flip a switch and be completely compliant with Principles for Responsible Investment. That’s not the case. Insurance companies can set a long-term goal.

Stewart Foley
Insurance AUM

No Rush

Long-term is indeed the operative word, according to Stewart Foley, founder of Insurance AUM and editor-in-chief of Insurance AUM Journal.

“Insurers are maybe a little behind the asset management community, but I think the misconception is that you need to flip a switch and be completely compliant with Principles for Responsible Investment (PRI). That's not the case,” Foley said. “Insurance companies can set a long-term goal.”

This allows investors to reorient holdings while taking into consideration potential limitations based on how certain investments are viewed by regulators, Foley said.

“The concern is, 'Oh, if I have to sell a bunch of my portfolio and reinvest at lower rates, I'm going to erode my book yield,'” Foley said. “My understanding is that insurers can set their sights on becoming PRI signatories and implement that over a longer-term period of time and make that adoption more seamless.”

PRI describes itself as a United Nations-supported international network of investors working together to implement its six aspirational principles into ESG investment.

Chuck Chamness National Association of Mutual Insurance Companies

The Disaster Reform Recovery Act ... has an important component, which we’re most excited about in this context of climate change, resiliency and preparing for problems that we know we’ll face with our changing climate.

Chuck Chamness
National Association of Mutual Insurance Companies

'A Real Conundrum'

PRI rules around using a look-through approach in investing are presenting roadblocks for some insurers. The National Association of Insurance Commissioners defines the approach as the process of admitting audited investments in entities owned by an unaudited downstream noninsurance holding company. That may limit some insurers' ability to participate in larger-scale investments that may adhere to PRI or value-based investing principles, Foley said.

“It's a real conundrum. At the NAIC level, you can get look-through on exchange traded funds—a look through the ETF structure into the underlying asset. However at the state level, that's not always the case. They treat the ETF structure opaquely. ETFs are a way for insurers to get good diversification with less of an investment or commitment than they may need to make on a separate-account basis.

“That's particularly true for small insurance companies who want to gain access to a particular asset class,” Foley added. “Maybe they want to buy, but they can't get there because they don't have enough of an allocation. It would be helpful to have a consistent treatment at both the NAIC level and at the state level to give look-through to ETFs.”

Foley said he believes regulators should remain focused on policyholder protection, including giving insurers more latitude in supporting their organizations through investing.

“The purpose of regulation is to protect the policyholder,” Foley said. “You have a claim. Your insurance company needs to have the financial strength to pay that claim. Regulators make sure that can happen. They do a lot. It's not only on the investment side. It's on the operations side as well. The way that this has always been done is guarding against the risk of default.”

Regulators can play a big part in value-based investing, said Tom Karol, general counsel, federal, National Association of Mutual Insurance Companies.

“We see that the greatest benefit that regulators, particularly the state insurance commissions and the NAIC, could provide to value-based investing would be to work directly with insurance portfolio managers to better understand the operations and the impediments that exist today, and to provide practical and workable definitions and standards that can supplement the existing insurance investment,” Karol said. “Overly broad political pronouncements that lack objective specificity or operational viability are only going to raise the barriers to value-based investing.”

Patrizio Urciuoli Liberty Mutual

Taking into consideration material environmental, social and governance factors can only contribute to generating better and superior long-term risk-adjusted return, which at the end of the day is what we as asset managers and asset owners should do.

Patrizio Urciuoli
Liberty Mutual

Expect More Disclosures

“The SEC announced that they're going to be looking at climate-related disclosures of companies,” Chris Fowle, director of the Americas for PRI, said. “Revisiting guidance they'd put out in 2010 to guide companies in terms of how they're talking about, thinking about or analyzing the risks and opportunities related to climate.

“Insurance companies in some cases will be subject to those rules. There are also discussions around formalizing disclosure on climate-related risk and opportunities for all types of insurers in line with something called the TCFD, the Taskforce on Climate-Related Financial Disclosure. There's discussion about making some of those requirements mandatory to enhance something that the NAIC has been doing for quite a long time. In fact, the NAIC has had a call for climate-related disclosure out for something like 10 years. That's now run by the California insurance commissioner's office.”

Regulators certainly hold influence over insurers' ability to pursue ESG investing, said Grace Vandecruze, founder and managing director, Grace Global Capital.

“This is an area where we expect to see more regulation,” Vandecruze said. “The SEC with the new administration has signaled clearly that ESG will impact the disclosures. We know that investors are keenly interested in ESG but also in our regulatory environment.

“I firmly believe incorporating ESG practices in the risk framework lens is good for the company. It's also good for businesses,” Vandecruze said. “I expect to see more ESG incorporated in the Own Risk and Solvency Assessment report that companies give to the regulators. We will see this topic and hear this topic more and more in the boardroom.”


Insurance-linked securities are the next frontier for insurers to pursue climate- and value-based investing, said Ross Webber, managing director, Bermuda, at Apex.

“By focusing on the climate and environmental aspects of perils, by providing capital and using the investment gains from that capital … . The proceeds of and the actual investment of the capital that's being used is specifically being directed into ESG friendly portfolios,” he said. “That's the way that it works.”

Another driver for value-based investing for insurers is coming from the EU Sustainable Finance Disclosure Regulation, Webber said. “It was a disclosure for companies to actually demonstrate and submit their investment portfolio to the EU and declare where they believed it was ESG-friendly and financially sustainable and demonstrating sustainability within their investments,” Webber said. “It's specific to the EU, but I genuinely believe this or something similar will become adopted by the U.K. as well as the United States in due course.”

Mutual Values

Chuck Chamness, president and CEO of NAMIC, maintains that mutual insurers were making great strides in embracing goals of the ESG movement long before the concept made headlines. After the powerful hurricanes of '04, and '05, he said, NAMIC's members wanted to focus on strengthening and enforcing building codes.

“By 2011 we broadened that to predisaster mitigation and resilience, broadly defined, knowing this was an issue we needed to address as a country,” Chamness said. “At the same time, we had that great industry resource, which is the Insurance Institute for Business and Home Safety's research center that was coming online in South Carolina.

“Now, we had not just sterile discussions about building codes and the need to prepare and build better in advance of disaster. We had this great research facility with 150 giant fans that blew hurricane-force winds and tested real structures. That was the beginning, building up over several years because it takes several years, always, to get anything done in Washington.”

In addition, the group developed the Disaster Reform Recovery Act working with Congress. The measure was signed into law in 2018. “The DRRA ... has an important component, which we're most excited about in this context of climate change, resiliency and preparing for problems we know we'll face with our changing climate.

“The Building Resilient Infrastructure and Communities aspect of the DRRA, the BRIC program, is for the first time an opportunity for FEMA to fund mitigation in advance of disaster,” Chamness said. “We know it will save lives. We know it will save property.”

A Big Tent

Starting value-based investing should not be overly difficult or costly, said Fowle from PRI.

“We want you to be an active owner, which can mean different things in different asset classes and public equities,” Fowle said. “We want you to ask your investee companies for ESG data to help you make decisions. We look for you to collaborate with other investors and share best practices. Ultimately, we hope our signatories progress up the curve and become leaders in this space. Finally, we do have a reporting element to being a signatory.”

After a one-year grace period, a company must report on its activities against a PRI-created framework. “That framework is designed to help you understand where you are, to benchmark yourself, to figure out those one, two, three things you might want to do over the next year to improve your practices and get in line with global best practices.”

PRI requires investors to have a responsible investment policy that covers 50% or more assets, and pay an annual fee, Fowle said. “If you don't meet the minimums after your grace period, if you don't pay the fee and if you don't report, then you would potentially be delisted. Otherwise the whole goal as a big tent organization is to help investors get started, even if they're not doing anything yet, to orient them to best practices globally, and help them climb the learning curve,” Fowle said.

Insurers in the U.S. seem to be climbing more slowly than many of their peers in other regions. “To a certain extent, the U.S. is behind. How can we catch up? What will any regulatory changes look like in the U.S.? Will they be in line with what's happening in other markets?” Fowle said. “Many of our investment manager signatories in the U.S. operate globally. They're already subject to many of these regulations, and they're bringing that knowledge back home. That extends to insurers as well that operate around the world. Definitely I think that we will see change.

“I always like to use the analogy of being on a ship. Do you want to ride the wave and understand where it's going to take you, or do you want to be hit by the wave that's definitely coming at you?”

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

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