A Better Balance of Risk: ESG Investing for Insurance Companies
September 21, 2018 By Sage Advisory
Insurance has always been a balance of risk – a balance of pure insurance risk (or underwriting risk) versus investment risk. The balance that is ultimately struck determines the unique personality of each insurance company. What is common among these disparate personalities is a desire to achieve specified results with the least amount of risk possible. From the investment side of the equation, this means protecting the growth of capital and surplus while maximizing risk-adjusted returns. Cue ESG!
At Sage, we view the incorporation of ESG principles as a logical and effective means of risk mitigation for insurance company portfolios, one that is a natural extension of the insurance experience. This experience refers to Enterprise Risk Management (ERM), an essential part of an insurance company’s ongoing operations. ESG applications serve to reveal risks that were once embedded in the investment portfolio, resulting in a more robust ERM framework. We now have further affirmation of this view. Survey trends continue to suggest a growing interest in and incorporation of ESG considerations into the investment process as a means for further enhancing risk mitigation efforts while at the same time not sacrificing returns.
A recent FundFire article surveyed the 2018 Global Insurance Report by BlackRock, which has over $7.8 trillion in assets under management. The findings in the report indicate that environmental, social, and governance issues are very significant to the insurance industry globally. That report states that:
- 83% of insurers suggest having an ESG policy is either extremely important or very important
- 59% of North American insurers have already adopted an ESG investment policy
- 70% of insurers lack ESG internal modeling capabilities
Through our own engagement with clients and the insurance industry at large, we are now seeing more frequent inquiries into how to better incorporate specific values, advocacies, or concerns that reflect the unique personality of the insurance company in question.
Given our ESG modeling capabilities and experience, potential solutions range from a separate ESG mandate; to a partial ESG “overlay” onto the general account; to a more holistic approach with a full integration of ESG principles into the investment process. At all three levels, Sage is able to effectively deliver an ESG solution.
We invite you to contact us for a deeper discussion or to even submit a portfolio for review to determine an effective implementation of ESG principles. You can also view our website for a thorough understanding of our insurance-specific capabilities and ESG-specific solutions – and how the marriage of the two can deliver a superior risk-managed approach to investing for insurance companies.
Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.
Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.