The insurance industry's environmental efforts are continuing unabated even with an uptick in anti-environmental, social and governance sentiments.

The push to address climate change and manage the risk of transitioning to a low carbon economy "has never been stronger than it is today in the insurance market," Neil Eckert, executive chairman of Bermuda-based reinsurance group Conduit Holdings Ltd., said in an interview.

Anti-ESG sentiment, stemming particularly from the US, has proven a challenge for the industry in some areas. In particular, the Net-Zero Insurance Alliance (NZIA) had an exodus of members after 23 US attorneys general said the UN-convened group's guidelines may contravene state and federal antitrust laws.

"You will get pockets of resistance. But overall, there is a movement driving very strongly in one direction," Eckert said.

Efforts 'undiminished'

While the ESG movement did not gain much traction 20 years ago, Eckert described some large oil companies as "beacons of leadership" on the environment, considering their investment in renewables, the shift to hydrogen, the development of batteries and other initiatives.

Eckert noted that the insurance industry is involved in several climate initiatives beyond the NZIA, such as the Sustainable Markets Initiative, which he said has been doing "some fantastic work" on areas such as the coverage gap and post-event disaster recovery.

Conduit's own ESG work, which includes a charitable foundation supporting community initiatives in Bermuda, "is undiminished," Eckert said. Like many global insurers and reinsurers, Conduit Re applies ESG criteria to underwriting and investments. But where some larger and more established insurers and reinsurers have pledged to no longer invest in or underwrite companies that deal with certain fossil fuels, particularly coal, Conduit's investment guidelines aim to "restrict" investment in financial instruments issued by certain companies, such as those that derive revenue from the extraction of thermal coal, according to the company's 2022 ESG policy.

Eckert said the ESG criteria for Conduit's investment portfolios are "quite strong" and noted that "you can't always exclude everything." He also pointed out that, as Conduit is a newer company, "our strategies will keep evolving and hopefully improving."

On the underwriting side, Eckert noted that reinsurers do not directly underwrite the underlying risks and so cannot be as sector-specific as primary insurers when defining their portfolios from an environmental perspective. "We are once and sometimes twice removed from the original risk. So, as a pure-play reinsurer it is much harder for us to be definitive," Eckert said. "We're not trying to shirk the issue and we take it all incredibly seriously, but we are a pure-play reinsurer."

Continuing good conditions

Conduit Re became profitable in the first half of 2023, reporting comprehensive income of $78.6 million compared with a comprehensive loss of $39.4 million in the same period in 2022. It reported a combined ratio, which measures underwriting profitability, of 72.5% for the period, compared with 99.9% in the first half of 2022. Excluding the liability discounting effect introduced by the new IFRS 17 accounting regime, the combined ratio was 83.1% in the first half compared with 105.8% in the same period of 2022. Combined ratios below 100% indicate an underwriting profit.

The company was launched to take advantage of improving reinsurance market conditions, triggered by several years of heavy natural catastrophe losses. Since Conduit's debut, market conditions have improved further, with reinsurance prices rising and terms and conditions tightening sharply at the Jan. 1 renewals, driven by 2022's Hurricane Ian, inflation and continuing geopolitical and macroeconomic uncertainty, among other things. Eckert, a 43-year veteran of the insurance industry and founder of Lloyd's insurer Brit Ltd., described the current situation as "the best market conditions that I've experienced in my career," on a call for the company's first-half earnings.

The hard reinsurance market looks likely to continue, Eckert said in the interview. The mid-2023 reinsurance renewals were more orderly than the fraught Jan. 1 process, mainly because market participants started earlier and knew more about what to expect rather than a lack of pricing momentum, he said.

Price rises in previous years were driven more by reinsurers seeking payback for losses than a lack of capacity, but "this year, for the first time, we saw a genuine imbalance of supply and demand," Eckert said. "I don't see that imbalance going away."