Just 14 per cent of Bermuda reinsurers and Insurance Linked Securities funds surveyed have a developed approach to ESG — environment, social and governance — risks, according to a new study.

And the report commissioned by the Bermuda Business Development Agency and carried out by management consultants Oxbow Partners, warned that Bermuda was lagging behind Europe on insuring more of the world’s risks.

It added: “Only a limited number of Bermudian market players have thus far been prominent players in working actively on solutions for developing markets, including microinsurance and parametric triggers.

“Despite being the global leader in ILS funds, the Bermuda market risks falling further behind without more comprehensive participation.”

However, Oxbow, which launched the report today at the BDA’s Bermuda Climate Risk Summit, said Bermuda is well placed to tackle the ESG challenges within re/insurance and the industry “genuinely wants to make an impact on ESG matters rather than just ticking the boxes or responding to outside pressures”.

It added: “Bermudian carriers have the required technical capability, and the regulator is perceived as a pragmatic facilitator.”

Oxbow interviewed more than 20 large Bermudian re/insurers and ILS funds representing GWP of more than $100 billion and an investment portfolio of more than $550 billion for the report, which is entitled ESG in Bermuda: The Rising Tide.

It said the overall Bermudian market was at an early stage in its ESG journey, noting: “Seventy-two per cent of companies have started engaging with ESG topics but are at the early stages of their ESG journey, whilst 14 per cent have a developed ESG approach. However, another 14 per cent had not taken any formal action.

“This is not unusual internationally. Most participants saw Bermuda as being ahead of much of the globe, including the US — even if perhaps trailing some parts of Europe.”

The survey said investors and shareholders were the biggest drivers of ESG, while lack of resource is the biggest barrier to ESG development.

And it said Bermudian carriers had not yet developed sophisticated approaches to incorporating ESG into underwriting, although investing practices were more advanced.

“Whilst some carriers (32 per cent) have an element of ESG incorporated into underwriting processes (mainly a simple exclusion to risk appetite), only a very small number were starting to develop more holistic approaches such as net-zero underwriting,” it said.

“Many were wary of blanket exclusions and preferred supporting a transition. Ninety-two per cent of participants who had not done so already said they intended to integrate ESG into their underwriting approaches in the future.”

“A more developed ESG approach to investment was common: 47 per cent of participants have integrated ESG into their investment process in some way, with many outsourcing investments to asset managers signed up to the Principles of Responsible Insurance.”

The report said reinsurers needed to better document their ESG efforts as some had done substantial work but had not yet disclosed it. Standardised disclosures are going to be increasingly demanded by regulators in the future, the report said.

Miqdaad Versi, the author of the report and head of ESG for Oxbow Partners, said: “Many of the ESG scoring tools and polls of ESG adoption have only scratched the surface of how re/insurers are engaging with ESG. For example, on the environment, they often simplistically prioritise blanket exclusions rather than recognising the value of supporting a transition. We are hopeful this extensively researched report across the key elements of our ESG framework provides the nuance required to better understand re/insurers’ strategies, the trade-offs they are facing, and the next steps needed.”

Stephen Weinstein, chairman of the BDA, added: “The BDA is pleased to help bring this important paper forward at this critical time for the implementation of ESG principles and frameworks in investment, business and public policy strategies.

“As the Bermuda market continues its aspirations as a centre of excellence and advocacy for climate resilience, climate finance and ESG-branded business and investment strategies, this report is both a useful accelerant tool and valuable future reference point.”