Tim Hughes, director, BPL Global, speaks to underwriters Ian Nunn, head of UK & Lloyd’s, political risk, credit & bond, AXA XL; Christophe White, global head of specialty credit, Allianz Trade; and Dan Osman, head of credit and political risk, Aspen Insurance Group, to get their take on how environmental, social and governance (ESG) principles are shaping the market.


Hughes: ESG has become an intrinsic part of underwriting models for many insurers. How do your books compare now with 10 years ago?

Nunn: A core tenet of underwriting in the political risk and trade credit market has always been to work with our partner insureds to focus on transactions that are resilient to economic cycles, market risks and geopolitical changes. Embedded within our role as underwriters, there have been the guiding principles of ESG, whether or not we labelled it as such.

Looking back 10 years, a lot has changed in terms of market capabilities and the use of the credit and political risk insurance product. Where previously, many underwriters’ books focused on trade and commodity finance due to tenor capabilities, the market has advanced significantly since then. It can now meaningfully participate in longer-term development and infrastructure projects out to 20 years, and can thereby support environmental development activities of commercial banks and multilateral institutions in renewable energy, as well as long-term social development projects.

Osman: I joined the insurance market four years ago, and in that short time the capabilities and types of enquiries have changed quite dramatically. Back then, we weren’t writing a lot of wind farms, but then we didn’t write project finance either, whereas we do now. We’ve changed and adopted a more future-focused model.

One of the historical attributes of this market has been to support finance going into emerging markets. So there has always been an intrinsic social and governance perspective – the ‘SG’ of ESG – to the portfolios.

White: Before there was a more formal ESG focus, many underwriters always tried to support emerging markets – through water projects or hospital developments in Africa, for example. One of the great things about our career choices as underwriters is that we’ve been able to get involved in some exciting projects that support emerging markets and develop global infrastructure.

Quite honestly, however, 10 years ago our books were heavily focused on oil and gas, as well as hydrocarbon-reliant sovereign exposures. But we’ve come a long way since then. And no doubt there’s a long way still to go.


Hughes: What are the considerations when making underwriting decisions on seemingly unfavourable clients or sectors? How are underwriting decisions guided by ESG principles and what impact will this have on the future of insurance?

Osman: We are interested in what the company says it’s doing to make the world a better place. This also inevitably raises the question of transparency and authenticity. For instance, is their business motivated by profit exclusively? Is the evolution of their socio-environmental surroundings a genuine concern? These considerations are all important to underwriters.

White: There has been a shift in that, if a company is not mindful of its environmental impact, that isn’t going to be great for your profits in the mid-term, and it will create ESG reputational risks for the company. Therefore, the issue of environmental impact inevitably gets blended in with credit concerns as well.

Nunn: ESG principles are embedded in our underwriting frameworks. AXA XL is committed to the UN Sustainable Development Goals and the Net Zero Insurance Alliance. As a multinational corporation with a presence around the globe, these commitments have meaning and are impactful.

As our clients have embraced new technologies in renewables – wind, solar, battery storage, green hydro – we have invested extensively in the future of our underwriting and risk teams to understand these evolving technologies.

White: It is a lot less binary than looking at just the environmental side of things and involves taking a broad range view. We have the UN Sustainability Goals and an EU Taxonomy for sustainable development, so we all have a framework sitting right there. It’s just trying to make sure that what we’re doing is heading fast enough in the right direction.


Hughes: What ESG criteria do you use in your underwriting models?

White: Allianz Trade launched the Green2Green Specialty Credit solution in 2020 to provide insurance for sustainability-focused transactions, and we have strict criteria to determine what qualifies as ‘green’. We’ve also committed to investing all the related premium over the tenor into certified green bonds to create a virtuous cycle, where the insurance of a client’s green deal remains green too.

Allianz has committed to transitioning its insurance investments and property and casualty (P&C) underwriting portfolios to net-zero greenhouse gas emissions by 2050; it has pledged to completely withdraw from coal by 2040. It will also further tighten restrictions on transactions in the oil and gas sector from January next year. ESG reviews are undertaken on all large risks in the portfolio globally and ESG remains a key part of our country rating process.

This global commitment fits well with what we are doing in our own division, where we have focused for some time on so-called ‘impact underwriting’, allowing us to make proactive steps to shift our portfolio from brown industries to green.

Osman: Aspen launched a CPR underwriting strategy called Project Leaf in January this year. Our focus is on supporting the energy transition over the next five years, setting clear targets for the volume of premium that we are writing from ESG-focused projects and reducing unfavourable positions. We are also looking at social and governance development. It’s clear that if you improve the governance and have a good social impact, you develop better quality transactions.

Everyone understands the need to progress to more sustainable models. But there are complex factors that must be considered. For example, while a project may appear unfavourable from an environmental perspective, it could have a positive social impact. The hydrocarbon sector is often the biggest employer in many of the developing economies we work with. Simply withdrawing from that would have huge ramifications and put a significant number of people out of jobs. We need to allow time for a transition. We’ve therefore tried to focus on striking a balance and setting manageable timeframes for businesses to adapt.

And if by then they haven’t made the changes we need, we may have to step back from those transactions.

Nunn: Our purpose as an organisation is to act for human progress by protecting what matters. That means a firm commitment to the energy transition, and we are supporting these significant commitments within our book. Under the leadership of the AXA Group, we have strong underwriting and investment strategies, and we are also deploying €25bn of green investments by 2025. Regarding our underwriting criteria, we are working with key rating agencies to quantify ESG metrics within our risk rating methodology. We are also working alongside our core insureds to understand their ESG underwritings considerations.


Hughes: How will the book look in the next 10-15 years?

White: It’s clear that the use of hydrocarbons will decline. On the upstream side, it will become increasingly challenging for us to insure. The most exciting thing to think about is the opportunities the future presents that we are yet to recognise. A couple of years ago, I wouldn’t have expected to have a portfolio full of offshore wind, solar and fibre rollout transactions.

Osman: I agree, what we don’t know is the part that is so fascinating. But if in 15 years we are still calling this sustainable finance, then we have failed. It should just be finance. I think hydrocarbons will inevitably still play their part as the transition may take longer than 15 years, but it certainly won’t be as prevalent as it is now.

Nunn: AXA XL’s book will be anchored around the core values we have discussed today: sustainable, progressive and resilient. Being at the forefront of conversations guided by these values is incredibly exciting as underwriters, an attitude shared by our likeminded clients. The insurance industry has proven time and again to be innovative and we will continue to develop deep liquidity pools for ever-evolving risks to be shared with reliable partners.