A good turnout at the Bermuda Risk Summit in May was a sign of Bermuda’s ESG positivity, Sherman Taylor, head of capital markets, at Ocorian, said last night.

“I think that Bermuda is definitely showing that it is an ESG positive jurisdiction,” Mr Taylor said. “The Bermuda Monetary Authority is already taking steps to put things in place to ensure that we keep in step with the highest international standards. There is a lot happening from a Bermuda standpoint.”

Mr Taylor was one of four panellists in the ‘Using Captives for ESG Initiatives’ discussion on the final day of the Bermuda Captive Conference 2022 held at the Fairmont Hamilton Princess.

Other panellists included Maura McGuigan, director of criteria, AM Best, Andy MacFarlane, head of climate, Axa, XL and Séadna Kirwan, risk advisory director, Aon Bermuda.

Mr Taylor said that while there has been an explosion of interest in ESG recently, it has actually been around for quite awhile, with the Dow Jones Sustainability Index published 23 years ago.

“ESG creates both risk and opportunities for the insurance industry,” Mr Taylor said. “Those risk and opportunities extend to captives as well. There are still lots of questions that still need to be answered, and ESG has its detractors that we have seen recently in the media.

“The idea that ESG and profitability are not mutually exclusive is now becoming more widely accepted.”

He predicted that ESG would continue to be a growing trend.

“We are already seeing a lot of activity in the regulatory space in ESG,” Mr Taylor said. “Expect more as time goes by.”

Ms McGuigan said ESG is a framework that can be used to look at companies where ESG can affect their financial performance in the future.

“It is all looking towards the goal of creating a sustainable future,” she said. “When we look at ESG we want to understand the relevant touch points of ESG to the insurance industry, specifically how it can impact an insurer’s financial strength. At the end of the day that is what our ratings are based on.”

Last year, AM Best added an ESG section to its credit rating report to promote transparency and to highlight the ESG elements that are relevant or material to the financial strength of a rated insurance company.

Ms McGuigan said it helps AM Best to better rate how an insurer manages their ESG risks and opportunities. AM Best has also been disclosing when any combination of ESG is a key driver of a rating action, either an upgrade, downgrade or change in outlook, or under review status, since April 2000.

She said: “We looked back and surveyed when those things took place and looked at the rating disclosures and found that ‘environmental’ and ‘governance’ is where we are seeing the most driving of the rating, more so than ‘social’.”

She thought the lack of social as a driver was a good thing.

“I am not concerned because when I think of ‘S’ I think of insurance companies gathering tons of data, and having the potential for a data privacy breech,” she said.

“So If I am not seeing ‘S’ moving ratings that is a good thing. That is one of the main elements of ‘S’ that could certainly cause negative rating actions if an insurer were to experience a data privacy breech. It would be a huge reputational hit. So I am going to look at that as a good thing.”

But Mr Taylor said all three pillars of ESG are important.

“In Bermuda, we have seen a lot of progress with the social pillar of ESG,” he said. “I am not particularly concerned, but it is something we need to keep an eye on.”