Bermuda has opportunity to lead the way on ILS ESG: Roundtable

As momentum continues to accelerate around responsible and sustainable investing, Bermuda’s standing in the global insurance-linked securities (ILS) sector means it’s well placed to capitalise on the growing base of environmental, social and governance (ESG) focused investors, say industry experts.

We recently published our sixth Bermuda ILS Executive Roundtable, held virtually for the second year owing to the global Covid-19 pandemic.

Executives and experts from across the reinsurance and ILS space discussed a range of burning industry topics, including the potential for Bermuda to attract capital looking for ESG related investments and how the ILS space fits into this.

“Bermuda must treat ESG as the “new normal” of business, and there are already encouraging signs that the key players in the jurisdiction are fully on board,” said Sherman Taylor, Executive Director at Ocorian.

“In the ILS sector, for example, market participants have long recognised the necessity of incorporating ESG into their activities in order to continue to access fresh capital. The next logical step for Bermuda is to introduce regulations to combat green-washing in the jurisdiction. This will keep Bermuda in step with the rest of the world and attract the rising tide of ESG focussed investors who are becoming a powerful force in the capital markets,” he continued.

According to Richard Lowther, Managing Partner at Integral ILS, where Bermuda could help lead ESG investing is to “support the development of an independent scoring and evaluation framework to grade ILS strategies and managers on ESG.”

The need for an ILS ESG framework was also highlighted by roundtable participant Kathleen Faries, Chief Executive Officer (CEO) at Horseshoe.

“A key aspect moving forward for not only Bermuda as a jurisdiction but the ILS sector as a whole is the need to develop a unified ILS ESG framework. Given Bermuda’s position in the sector, they certainly could lead the way in this initiative,” she explained.

Adding, “Furthermore, Bermuda is the centre of risk transfer for natural, weather-related catastrophes and there is the potential to extend this expertise to a leading position in climate related risk transfer and financing.”

Brad Adderley, Partner at global law firm Appleby, agreed that Bermuda must continue to develop its ESG framework, but argued that in some ways, the island has naturally been doing this even before ESG became a hot topic.

“I think one, the BMA has come up with its own guidance, looking to ESG and making sure things are ESG compliant. Two, I think we could argue that cat bonds, generally, have always been ESG compliant. Why? Because they are about protecting the environment. And three, we have a history of it here in Bermuda. In fact, you have things like the Africa Risk Capacity reinsuring flood and drought reinsurance in poor nations in Africa. What could be any more ESG than that?”

“It now is an important focus, and Bermuda needs to do a better job talking about ESG and what it is doing, and what it has been doing naturally over the years,” said Adderley.

Building on this, Aaron García Ehrhardt, CFA, Principal, Portfolio Manager at Hiscox ILS, highlighted the important role the re/insurance industry has in helping clients prepare to navigate the complex ESG issue.

“While ILS is an intrinsically positive asset class with its role in protecting society against the earth’s perils, attracting ESG-focused capital requires us to go beyond this. At Hiscox, we believe that the benefits of an ESG approach to ILS investing is tangible. For example, from an environmental point of view, quantifying the impact of climate change on risk is essential to achieve sustainable returns,” said García Ehrhardt.

Download your copy of the Artemis Bermuda Executive Roundtable 2021.