AM Best has released a new commentary addressing frequently asked questions about environmental, social, and governance (ESG) considerations for financial strength and application of ESG within the rating process.

The rating agency said that the new commentary is being released in recognition of the belief that there is uncertainty surrounding what ESG entails and what actions or disclosures are expected from insurance and reinsurance companies.

The company is communicating how it views ESG factors in the context of insurance credit ratings to provide greater transparency to the market.

As a result, AM Best has developed an FAQ document to help to provide additional background and context, and added an ESG section to its Credit Reports under Enterprise Risk Management.

Matthew C Mosher, president and CEO of AM Best Rating Services, stated: “AM Best has always considered ESG risks in our credit-rating analysis when they were material and relevant to financial strength.”

In 2018 methodology was updated to identify factors within the ratings process that are considered ESG factors and how these may impact any one of the building blocks used to determine credit ratings.

Mr Mosher added: “The discussion of ESG factors in our methodology allows us to be more transparent as to how these risks impact our consideration of an insurer’s financial strength.

“The impact of ESG factors on financial strength varies depending on a company’s profile, exposures and level of risk transfer, as well as the markets in which it operates.”

To access a complimentary copy: http://www3.ambest.com/bestweek/purchase.asp?record_code=314927.

AM Best will also host an ESG briefing on December 1.

www.ambest.com/conferences/ESGReview/index.html.