- Environmental, social, and governance (ESG) credit risks exert material influence on less than 10% of our credit ratings within the North American insurance sector.
- Environmental risk factors generally have a more significant impact on our views of the creditworthiness of property casualty (re)insurers, and social risk factors tend to be more influential for life and health insurers.
- Governance is generally viewed neutral on most rated insurers, though there has been a few instances that led to credit rating actions.
Environmental, social, and governance (ESG) risks and opportunities can affect an entity's capacity to meet its financial commitments in many ways. S&P Global Ratings incorporates these considerations into its ratings methodology and analytics, which enables analysts to factor in short-, medium-, and long-term impacts--both qualitative and quantitative--to multiple steps of their credit analysis. Strong ESG credentials do not necessarily indicate strong creditworthiness. Similarly, weak ESG credentials do not necessarily indicate weak creditworthiness (see "The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis," published Sept. 12, 2019).
Our ESG report cards qualitatively explore the relative exposures (average, below, above average) of sectors to environmental and social credit factors over the short, medium, and long term.
In addition to our general sector view, this report card lists ESG insights for individual companies, including how and why ESG factors may have a more positive or negative influence on an entity's credit quality compared to sector peers or the broader sector. These comparative views of environmental and social risks are qualitative and established by analysts during industry portfolio discussions, with the goal of providing more insight and transparency.
The list of entities covered in this report is not exhaustive. We may provide additional ESG insights in individual company analyses throughout the year as they change or develop, with companies expected to increasingly focus on ESG in their communication and strategy updates.
Insurance Companies Face ESG Risks Both Directly And Indirectly
When it comes to ESG factors, S&P Global Ratings believes that the insurance industry is different from other sectors in that insurers face ESG risks and opportunities not only directly through their own operations, but also indirectly through their role as risk carriers and investors in other sectors. The ESG risks insurance companies face directly through their own operations include treating their customers fairly, ensuring proper governance and transparency, and enabling gender equality in their workforce. And in their role as risk carriers, they assume their counterparties' exposure to risks through their investment portfolios and insurance liabilities. In many cases, the indirect sources of ESG risk can be more material than the direct sources.
In North America, ESG factors have materially influenced our ratings on 10 insurers (five primary property/casualty, four reinsurance, and one life) largely due to their business strategies. Built on deep industry knowledge and strong customer engagement, their strategies have provided barriers to entry, which have helped sustain their competitive positions. On the flip side, their strategies have also led to significant concentration in certain regions, product offerings, or demographic profiles vulnerable to ESG risks. In our view, high exposure itself doesn't generally lead to rating sensitivity. Rather, it's the confluence of risk variables, correlated and undiversifiable, that can give rise to substantial capital and earnings volatility. This is especially true when the risk variables are fundamentally complex--for example, changes in demographic profile or litigation environment could expose insurers to disproportionate losses.
Since insurance is a service industry, companies' direct exposure to environmental risks is fairly limited relative to other, more resource-intensive industries such as manufacturing, metals and mining, and agriculture. Insurers tend to have smaller carbon footprints, limited water use, and are not significant greenhouse gas emitters. The industry's exposure to environmental risk largely stems from indirect sources of risk through its underwriting and investment activities. Indirect environmental risks, namely climate change, manifest in three ways for insurers:
- Physical risks, or the risk of increasing insurance claims due to weather-related events;
- Transition risks such as the potential for significant losses in asset values as changes in policy or public opinion can affect the attractiveness of certain sectors or products; and
- Liability risks if individuals or corporations look for compensation for losses associated with physical or transition risks, leading to lawsuits and insurance claims.
Environmental exposure can be a material source of risk for (re)insurers that write predominantly property/catastrophe risks. Between 2017 and 2019, weather-related insured payouts including hurricanes, floods, and wildfires reached nearly $275 billion. Our consideration of its materiality to ratings is based on an individual (re)insurer's ability to reprice, steer away or mitigate, and manage its exposures through strong capital and enterprise risk management. Leveraging on their expertise in risk identification, modeling, and management, non-life insurers can help to design solutions that increase resilience to environmental risk. Working with local and national governments and international donors to develop insurance-related solutions can open up new risk pools, helping to boost and diversify profits.
While generally less meaningful to life and health insurers, localized environmental events have had isolated effects on health insurers. For example, forest fires have led to higher morbidity in asthma patients, while behavioral health care needs increase after significant environmental disasters. Additionally, health insurers have to adapt to the closure of health care facilities during and after such events, as was evidenced in New York City after Superstorm Sandy and in Puerto Rico after Hurricane Irma. While life insurers could experience increased frequency or severity of claims from environmental risks--for example, increasing mortality from heatstroke or respiratory diseases as the temperature rises in more densely populated areas--their main exposure to environmental factors come via their investment portfolios.
Insurers' assets are at risk of devaluation due to the risk associated with policy transition. However, the need to build a society that is more resilient and adaptive to climate change presents opportunities for insurers to invest in the infrastructure necessary to support this adaptation. ESG continues to gain prominence in the investment community, including insurers, who holds more than $80 trillion of investments on their balance sheets globally. We have seen an increasing number of insurers making concerted efforts to expand responsible investing, underwriting, and product offerings. Recognizing that climate-related risk is systemic and non-diversifiable, we'd look for tangible evidence of how an insurer's sustainable investment and underwriting approach might translate to reduced earnings and capital volatility, improved diversification, or even become a differentiator in a competitive market.
Social exposures are more relevant to life and health insurers given their susceptibility to demographic changes, such as consumer behavior, mortality, and morbidity trends. This is especially true for insurers writing long-term care business, where higher-than-anticipated morbidity rates have resulted in reserve charges and repricing of this business (see "Ten Things You Need to Know About U.S. Insurers’ Long-Term Care Business," published Jan. 23, 2020).
Additionally, mortality shifts may be underway in the U.S. Recent data from the Centers for Disease Control (CDC) indicate morality spikes within certain cohorts resulting from higher suicide rates and the opioid crisis. Although this hasn't yet affected the financial profiles of life insurers, any meaningful change in population mortality trends would influence claims intensity and new product pricing.
Meanwhile, as health insurers attempt to provide more comprehensive products, we have seen non-medical benefits, also referred to as social determinants of health, playing an increasing role in product development.
Recently, we have observed how rising legal risks (known in the industry as "social inflation") have affected certain casualty writers amid higher-cost jury verdicts, the rise in litigation financing, and high settlement values. This is no surprise given the propensity for Americans to sue. Liabilities leading to claims or benefit payments that arise from social risk exposure normally carry a long gestation period, leading to uncertainty about both the timing of payments and financial impact. Our view on this risk reflects an insurer's ability to detect early mega trends, the reasonableness of its underlying actuarial assumptions, and scenario/stress testing to enable adequate pricing.
Insurance companies are also susceptible to data privacy and security breaches, a serious and common threat to the data-intensive industry. To address IT and cybersecurity risk, insurers continuing to invest in state-of-the-art threat-detection systems and extensive research in quantifying and mitigating exposures to cyber risk--both internally, and externally in the cyber insurance policy they write. We also examine efforts to leverage advanced modeling techniques to better understand the potential financial impact of cyber exposure.
We monitor the governance oversight and direction conducted by an enterprise's owners, board, executives, and managers. For insurers, our analysis of governance risk examines:
- Board independence from management,
- Board's control,
- Presence of a professional and independent board that is engaged in risk oversight,
- Quality of public disclosures,
- Track record of regulatory, tax, and legal infractions, and
- Consistent and effective communication to stakeholders.
Furthermore, our view of an insurer's risk-management culture informs our assessment of governance. Areas of risk culture embedded in our analysis include risk governance, risk-appetite framework, risk reporting, and incentive compensation structure. Our governance assessment, which doesn't provide any uplift to ratings under our methodology, is generally neutral for the majority of insurers we rate.
ESG Risks In The North American Insurance Sector
|Company/Financial Strength Rating/Comments||Analyst|
|Aetna’s exposure to key long-term ESG risks is, we believe, in line with those of the wider health insurance industry. Like most health insurers, the company’s primary exposures are related to social factors because of health care’s importance to the economy and society. Key industry social risks include changing consumer preferences, the aging population, unsustainable national health care cost inflation, and persistent political/regulatory risk (as a result of the other risks). We believe CVS's solid execution of its Aetna integration reflects well on the management team's breadth and depth, and risk management approach. For example, CVS was proactive in migrating the management of its SilverScript Medicare Part D business to the new health care benefits (HCB) segment. This allowed CVS/Aetna to effectively prepare its 2020 Medicare product bids. As a health insurer, Aetna’s exposure to environmental risks is limited, although it may be indirectly exposed to them through its corporate parent, CVS.||Sung, James|
|Aflac’s exposure to ESG risk factors is in line with the life insurance industry. Similar to other life insurers, the company's main ESG exposure is to social factors, rather than environmental or governance. Aflac's operates in two geographic segments: about 70% of revenue is generated in Japan and 30% is from the U.S. In Japan, the company is the largest provider of cancer and supplemental medical insurance products. It has roughly 63% of Japan's in-force cancer insurance market and about 16% of the stand-alone medical insurance market (as of March 2018). In the U.S., Aflac maintains a strong position in voluntary supplemental insurance, such as income and asset protection-type product, via employers. While these figures may mean it has some indirect exposure to environmental factors, we do not believe they are very impactful. Aflac has a seasoned management team with sound depth and breadth to operate successfully in its markets. Management has long shown its ability to generate profitable earnings, and we believe the team will remain strong and relatively stable for the next several years.||Stein, Neil|
|Allstate is exposed to moderate ESG risks as a U.S. personal lines writer. As a leading writer of homeowners' and personal auto insurance, the company faces catastrophe risk. However, we view this risk as minimal given Allstate's robust catastrophe risk management framework and centralized reinsurance program with significant coverage. This coverage includes a limit of $4.4 billion in excess of a $500 million retention, which enables the company to quickly implement underwriting actions to further reduce exposure to high-risk areas. Allstate has robust market risk and asset-liability (ALM) processes that help it manage its unique profile of highly short-tail risks (auto and property exposures) with longevity and mortality risk associated with its life operations, which includes legacy annuity books with high minimum crediting rates. As a result, Allstate has increased its utilization of performance-based assets to increase returns while managing the liquidity risk and volatility within its enterprise capital management plans. Allstate, like many large auto liability players, faces significant long-term headwinds from autonomous vehicles, though Allstate has been focusing on diversifying its products, supported by recent acquisitions, to reduce its auto concentrations. We view governance as neutral to the rating as Allstate has an independent board with a broad range of expertise and its detailed and well communicated strategic planning process||Guijarro, Stephen|
|American International Group Inc.(A+/Stable/A-2)|
|AIG's exposure to ESG risks is in line with that of the broader insurance sector. AIG's 2019 North American catastrophe reinsurance program provides $4.5 billion of aggregate, occurrence, and top and aggregate protection after meeting its $750 million aggregate retention. We believe AIG's low retention, aggregate protection, and high reinsurance limits add greater frequency and severity risk protection. Nevertheless, property catastrophe exposure remains a potential source of earnings and capital volatility. We regard AIG’s exposure to demographic developments, including longevity, as comparable to other life insurance companies. AIG, like its peers, is also exposed the highly litigious U.S. legal system, which could lead to a rise in unpredictable liability claims settlements and related reserve volatility from unanticipated spikes in claims severity or frequency trends relative to other jurisdictions, including "silent cyber" risk, or cyber-related losses from traditional property and liability policies that do not affirmatively cover cyber risk. AIG is first among its peers to affirmatively cover or exclude physical and non-physical cyber exposures by January 2020. Execution risk remains high considering shifts in AIG's business strategy and management churn every couple of years. Prospects are brighter as Brian Duperreault is approaching his third anniversary as CEO.||Dolin, Tracy|
|Ameriprise Financial Inc.(AA-/Negative/--)|
|We consider Ameriprise’s (AMP) exposure to Environmental, Social and Governance (ESG) risk factors as moderate, in line with its peers in the sectors it operates in: life insurance, asset management, and wealth management. With AMP's risk profile becoming increasingly focused on asset and wealth management, which now makes up more than 70% of total earnings versus 12% in 2009, the company's major ESG risks tilt towards the social, rather than governance or environmental. We believe the risks and opportunities involved with serving an aging population in the U.S. are well managed by the company and are reflected in our ratings. We view AMP's management and governance as satisfactory, reflecting its highly experienced management team that follows a transparent and diligent strategic planning process. The company has a track record of successfully executing its strategy--in line with its organizational capabilities and market conditions. It has been effective in attracting and retaining a high-caliber agent network, as well as generating strong operating results. As with most of its peers, it has minimal direct exposure to environmental factors.||Abhyankar, Heena|
|We believe Anthem’s ESG exposure is in line with that of the broader U.S. health insurance industry. Social risks like the rising cost of health care, shifting consumer preferences, and persistent political/regulatory risk dominate Anthem’s ESG profile because the nature of its business is intertwined with the U.S. economy and society at large. We believe Anthem’s strong Blue brand, growing value-based provider arrangements (which help reduce medical costs), and diversification into the services business (such as behavioral health) are key strengths that will help it address some of its social risks. With respect to the aging population, Anthem’s undersized but rapidly growing Medicare Advantage (MA) business provides it with strong growth opportunities but also exposes it to government-related reimbursement and regulatory risks. In terms of governance, we believe that Anthem's current leadership team has improved the company’s overall execution and long-term competitiveness during the past several years.||Sung, James|
|Argo Group International Holdings Ltd.(A-/Negative/--)|
|We view governance risk elevated for Argo Group International Holdings Ltd. (Argo), parent of Argo Group US Inc. On Nov. 5, 2019, Argo announced the sudden retirement of its CEO, Mark Watson, and a few weeks before that, it disclosed an ongoing board review of its governance and compensation-related matters subsequent to an SEC subpoena seeking information on disclosure of certain compensation-related perquisites. The company maintains that the amounts involved are not material to its financial position or the reliability of its internal controls. However, the potential impact from the outcome of the SEC investigation is unknown. Furthermore, these developments suggest to us some uncertainty regarding the independence and effectiveness of the board’s oversight of the company. Argo has announced measures to enhance governance, such as declassification of the board (classified boards have separate classes of directors, with one class up for reelection each year) and a reduction of the board size to be voted on at the upcoming 2020 annual general meeting. However, these measures are not effective yet and may not necessarily be sufficient to address potential shortcomings. In addition, we believe the board’s credibility has been weakened and the company will likely be challenged to restore stakeholders’ confidence following both the recent disclosures (which, in our view, seem to contrast with the defense of its expense practices earlier in 2019) and the time between the receipt of the SEC subpoena and the company’s public acknowledgement. These developments are likely to lead to additional questions from shareholders and other stakeholders, heightening litigation risk, which, along with the ongoing SEC investigation, could create a distraction for the company. This may result in other changes, as highlighted by the announced retirement of five long-standing directors and the recent cooperation agreement with an active shareholder, Voce Capital Management LLC, pertaining to the board’s composition. Argo’s environmental and social risks are broadly in line with its re/insurance peers.||Manku, Hardeep|
|Assured Guaranty Ltd.(AA/Stable/--)|
|Assured's ESG risks are line with those of the broader insurance sector. The most predominant of these risks is the sector’s exposure to natural catastrophes and the effect these events have on lease and revenue streams backing insured issues, as well as lower assessed property values due to weather-related property damage. The insurer's underwriting, surveillance, and insured portfolio management strategies mitigate risk concentration and potential losses due to the environment. When we assess the risk of the underlying insured issue to a bond insurer, ESG is part of the analysis of each insured issue. The company formalized consideration of environmental risks in its credit underwriting process in January 2019. Also in 2019, the company augmented its investment strategy to incorporate consideration of material ESG risks and opportunities in investment decisions. The company has clear investment limits by individual obligor, sector, credit ratings, and speculative-grade securities. Through its ERM function, the company continues to closely monitor cybersecurity risk and makes enhancements where needed. Lastly, we believe both social and governance credit factors are not material to our opinion of the company’s creditworthiness. While we continue to view Assured’s governance practices as a strength, our governance assessment does not provide any uplift to the ratings.||Veno, David|
|Berkshire Hathaway Inc.'s Insurance Group(AA+/Stable/A-1+)|
|Our view of Berkshire Hathaway Inc.'s Insurance Group’s environmental and social risk exposures takes into account property-catastrophe business, retroactive business (which includes asbestos, environmental, and other latent injury risks), and longevity exposures. The company specializes in providing broad coverages and large limits for re/insurance companies compared with its peers, owing to its large balance sheet and underwriting expertise. Furthermore, similar to its U.S. peers, the litigious nature of the U.S. legal system can have an adverse impact from unanticipated change in frequency and claims settlement trends, especially in view of its long-tail casualty business. In addition, certain investments held by its operating subsidiaries are exposed to environmental and social risks as well--for example, its wholly owned U.S. railroad business, whose exposure is in line with its sector. Overall, these exposures could contribute to the insurance group’s earnings volatility, although the company’s diversified business mix, strong earnings generation and capital strength mitigate these risks to a large extent. The company’s fundamental risk management approach and underwriting discipline helped it throughout the years, despite a siloed manner of managing its subsidiaries. The group’s common sense approach to managing risk has served it well, as demonstrated by its financial strength during major tail events such as 9/11; 2005 Hurricanes Katrina, Rita, and Wilma; and the 2008 financial crisis. We assess governance factors as neutral to the rating. The insurance businesses are privately held subsidiaries of Berkshire Hathaway Inc. with oversight from vice chairman of the insurance, Ajit Jain, providing for better alignment of objectives.||Manku, Hardeep|
|Brighthouse Financial Inc.(A+/Stable/--)|
|Overall, we consider ESG factors for Brighthouse Financial Inc. (BHF) to be broadly in line with industry peers. Social risks, in our view, largely driven by prospective changes to consumer behavior, preferences, and priorities, have the potential to affect most life insurers. General trends in the U.S. population, such as longevity, potential risks to social safety net programs, and the shifting of responsibility for retirement planning and financial security to individuals could create both opportunity and challenges. BHF offers a wide variety of annuity and life insurance products through multiple independent distribution channels and marketing arrangements with a diverse network of partners, and we believe they are well-positioned when compared with peers. Moreover, we consider BHF to maintain an effective risk management program and expect it to manage its operational, investment, and business risks within its overall stated risk tolerances, and we regard BHF’s exposure to social factors as comparable to other life insurance companies. Further, we view the company’s governance risk as neutral to the rating and in line with the sector. We view its exposure to environmental risk factors, largely via indirect exposure from investment activities balanced with its low use of physical infrastructure and facilities, as on par with the life insurance industry and it does not hurt our credit ratings on the company.||Stein, Neil|
|Build America Mutual Assurance Co.(AA/Stable/--)|
|We assess BAM’s ESG risks as in line with those of the insurance industry. The most predominant of these risks are the sector’s exposure to natural catastrophe events and the effect these events have on lease and revenue streams backing insured issues, as well as lower assessed property values due to weather-related property damage. However, the insurer's underwriting, surveillance, and insured portfolio management strategies mitigate risk concentration and potential losses due to the environment. When we assess the risk of the underlying insured issue to a bond insurer, ESG is part of the analysis of each insured issue. BAM’s investment guidelines incorporate ESG considerations by prohibiting investment in coal and other fossil fuels, as well as clear limits by individual obligor, sector, credit ratings, and speculative-grade securities. Additionally, through BAM GreenStar, BAM is educating targeted issuers about the benefits of green bonds as a tool to satisfy investor demand for social investing. Lastly, we believe both social and governance credit factors are not material to our opinion of the company’s creditworthiness. While we continue to view BAM’s governance practices as a strength, our governance assessment does not provide any uplift to the ratings.||Veno, David|
|Centene’s (CNC) exposure to ESG factors is in line with those of other health insurers in the U.S. and is concentrated mainly in social risks. Social risks like the rising cost of health care, shifting consumer preferences, and persistent political/regulatory risk dominate Centene’s ESG profile because the nature of its business is intertwined with the U.S. economy and society at large. CNC has a higher concentration than some of its peers in government-sponsored business. In January 2020, CNC completed the acquisition of Wellcare. While this acquisition adds scale and diversification to CNC, much of the added business is also within the government-sponsored sector. We believe these risks to be well managed and reflected in our rating on the company. The company’s management has a good track record of winning, retaining, and expanding Medicaid contracts as well as integrating acquisitions of various sizes. Management has executed successfully in its overall strategy and has profitably grown in its core business segments. As with many of its peers and competitors, the company has minimal exposure to environmental risks.||Banerjee, Deep|
|Most large global P/C insurers generally have moderate exposure to environmental and social risks, and we view Chubb to be broadly in line with its global multiline peers. Corporate governance practices are typically strong in Switzerland, where Chubb is domiciled, and we view them as low to moderate risk in the countries where Chubb has material exposure. Our view of Chubb’s environmental risk takes into consideration its moderate property catastrophe exposure, which could be a source of capital and earnings volatility. Also, we think that it is unlikely to experience losses greater than its risk tolerance given its diversified risk profile, strong risk modeling capabilities, and reinsurance utilization. These mitigating factors are reflected in Chubb’s track record of peer-leading underwriting performance, with a five-year average combined ratio of around 89% and little variation despite elevated catastrophe losses in 2017-2018. The company is also exposed to health-related claims due to its legacy asbestos and pollution exposure, though this risk is mitigated to some extent by coverage from highly rated reinsurers. The company’s exposure to social risk is similar to that of other global P/C insurers. In particular, Chubb is susceptible to data privacy and security breaches that could damage its reputation and result in significant remediation costs and fines by regulators. Chubb’s investment strategy includes clear limits by individual obligor, sector, and credit quality that mitigate any emerging ESG-related risks that might affect the value of the securities Chubb owns from an individual issuer or the companies in a particular economic sector.||Iten, John|
|We consider Cigna’s exposure to ESG risk factors as being on par with the health insurance industry. Cigna’s main area of ESG exposure stems from social factors, such as rising health care costs or political and regulatory pressures. Cigna is somewhat differentiated by its heavy focus on the self-funded commercial group market, which slightly lowers its direct medical cost exposure compared with peers. Nevertheless its overall social risks are very much in line with those of other health insurers. Cigna has a well-seasoned, stable senior management team with deep company experience. It also has a formal enterprise risk management program overseen by its board of directors and senior management. Moreover, the company has been able to retain key Express Scripts executives after its recent acquisition. Cigna, like most of the companies in its sector, has limited exposure to environmental risks.||Banerjee, Deep|
|CNA Financial Corp.(A+/Stable/--)|
|In line with the broad insurance sector, our analysis of CNA’s environmental risk takes into consideration its moderate property catastrophe exposure (as measured by its net probable maximum loss relative to total available capital and reinsurance utilization). While the company is susceptible to heightened health-related claims due to its legacy asbestos and environmental exposure, we believe the company’s adverse development coverage partially mitigate the potential losses. The additional cost of health-related claims could heighten morbidity risk given the company's substantial long-term care run-off reserves, which have reached nearly $12.3 billion at year-end 2019. We, however, believe the company’s proactive claims and active management, robust actuarial review (including a prudent margin added to the carried reserves), and sizable capital buffer somewhat mitigate the potential impact of future reserve volatility. We regard the management team as highly effective and seasoned. Management communication of goals and targets are clear, with strong emphasis on cross-function collaboration. CNA, 89% owned by Loews Corp., contributes more than 60% of Loews’ reported value.||Kwan, Patricia|
|Everest Re Group Ltd.(A+/Stable/--)|
|We believe Everest’s exposure to environmental risk is elevated relative to peers. For instance, the company’s property catastrophe southeast wind 1-in-250 year net probable maximum loss, which is its largest zonal exposure, represented 11.5% of its year-end 2018 capital. We believe Everest’s substantial property catastrophe exposure can cause volatility in its earnings and potentially its capital. However, the company has effectively underwritten and managed this risk and implemented capital protection solutions. Furthermore, given its loss experience due to natural disasters in 2017 and 2018, Everest has reduced its property catastrophe exposure, and we expect it will continue to do so with increased hedging and growth in non-catastrophe exposed lines of business in both its insurance and reinsurance segments. We think the strength of Everest’s enterprise risk management program enables it to manage its elevated environmental exposure within its risk limits. However, Everest is exposed to the rising cost of insurance claims due to the increased frequency and severity of weather-related events, which could be exacerbated by climate change. Given the nature of its clients, we view Everest’s exposure to social factors as lower than those of front-line primary insurers. Lastly, we view governance as neutral in Everest’s credit analysis.||Gharib, Taoufik|
|Factory Mutual Insurance Co.(A+/Stable/--)|
|FM Global is the clear global market leader in providing coverage for large, highly engineered commercial property risks. As part of its underwriting process, each large risk is inspected by the company’s engineers, who prepare a detailed analysis of exposure, including the type of building construction, the elevation of the property to assess flood risk, and the equipment and materials used in the client’s business. The engineers also prepare a plan outlining recommended improvements to mitigate the risks identified and work with the client on a timetable for implementation. Its exclusive focus on this segment and the large per-risk limits it is willing to underwrite lead us to view FM Global’s credit quality as substantially more exposed to environmental risks--specifically its exposure arising from natural catastrophe events--compared with the broader P/C industry. This exposure had a pronounced impact on the company’s underwriting results in 2017 and 2018, when the combined ratio increased to around 130%. This is a prime factor in our assessment of risk exposure as high and financial risk profile as strong. Recognizing the increased frequency of severe weather events in recent years, the company has taken steps to mitigate its exposure, includes adjusting its reinsurance program and reducing its aggregate exposure in certain geographic regions. A mitigating factor is FM Global’s maintenance of capital adequacy well into the ’AAA’ range, as measured by our capital adequacy model.||Iten, John|
|Fairfax Financial Holdings Ltd.(A-/Positive/--)|
|As one of the major property and casualty commercial line re/insurers, Fairfax’s moderate exposure to environmental risks primarily stems from its property-catastrophe business. Therefore, the company limits its potential one year’s aggregate pretax net catastrophe losses within its annual net earnings. For instance, in 2017 and 2018, catastrophe losses contributed 13.7% and 6.5% percentage points, respectively, to its underwriting combined ratio. However, these catastrophe losses were contained within its consolidated net income. Fairfax is also exposed to health-related claims due to its legacy asbestos and pollution exposure through its run-off business. Similar to its U.S. peers, Fairfax is exposed to social risks and a litigious U.S. legal system, which could lead to reserve volatility from unanticipated increase in frequency or severity trends. Overall, the exposure to these risks contribute to moderate earnings and potential capital volatility. But Fairfax has a well-diversified global business, strong risk controls, proactive reserving and claims management, reinsurance/retrocession protection, and other mitigating solutions. In general, we view governance factors as neutral to the rating. Fairfax has a dual-class structure, which provides its founder, chairman, and CEO Prem Watsa a significant voting proportion, and he has had considerable influence in shaping the company’s overall strategy and growth since its inception. The company and its subsidiaries are well run by seasoned management teams with effective oversight from an independent board of directors.||Manku, Hardeep|
|Farmers Insurance Exchange(A/Stable/--)|
|Farmers’ exposure to ESG risks is somewhat elevated relative to the broader U.S. P/C insurance sector. Farmers is especially prone to natural catastrophe and regulatory risks due to its concentration of business in Texas and California. Texas and California contributed about 46% of Farmers’ total premiums at year-end 2018. In particular, we believe there are challenges in California to achieve rate increase needs and to non-renew wildfire catastrophe exposures. Furthermore, Farmers holds moderately strong capitalization, below its peers’ benchmark (of very strong to extremely strong), contributing to a higher theoretical probable maximum catastrophe loss relative to statutory surplus. Offsetting these concerns is Farmers' significant reinsurance, which has provided ample protection in back-to-back challenging catastrophe years. Given the rolling three-year renewal of reinsurance protection, Farmers has been able to purchase similar levels of coverage without significant increases in costs for the structure.||Dolin, Tracy|
|Fidelis Insurance Holdings Ltd.(A-/Stable/--)|
|Fidelis, a relatively new entrant in the global re/insurance market, began operations in 2015. We believe Fidelis’ exposure to environmental risk is elevated, as highlighted by its property catastrophe 1-in-250 year net probable maximum loss relative to its capital that is higher than peers. Balancing this, Fidelis’ performance in 2017 and 2018, which saw significant industry natural catastrophe losses, was relatively better than peers. Likewise, the company focuses on mid-to-high layers for various product lines, including property catastrophe and energy, which keep the attritional losses low but can lead to large losses, especially in a tail scenario. As a result, Fidelis’ earnings and potentially its capital are exposed to higher-than-average volatility. Despite the company’s short operating history, we have a favorable view of its risk management practices. The company’s risk controls are well developed to enable it to manage environmental risk, among other risks, within its limits, including judicious use of reinsurance and insurance-linked notes. Given the profile of Fidelis’ clients, we view its exposure to social factors as lower than those of front-line primary insurers. Finally, we view governance-related factors as neutral in Fidelis’ credit analysis.||Gharib, Taoufik|
|First Insurance Co. of Hawaii Ltd.(A/Positive/--)|
|We view First Insurance Co. of Hawaii’s credit quality as more exposed to ESG risks than the broader insurance industry given the company’s concentration in Hawaii and material exposure to wind and hurricane losses (as measured by its theoretical probable maximum loss relative to shareholders' equity with gross exposure in a 1-in-250 return period in excess of 100%). We also believe the company could be subject to higher claim costs amid a surge in demand to repair and recover damage in these areas. Offsetting these factors are our favorable view of the company’s catastrophe risk controls and prudent capital management, which benefits from its relationship with parent Tokio Marine (FICOH represents approximately 1% of the group capitalization). Benefits from the relationship include reinsurance protection, greater negotiation power in the reinsurance market, more sophisticated risk management capabilities, and the ability to leverage the best resources available across the portfolio of companies Tokio Marine owns.||Suozzo, Brian|
|Greater New York Mutual Insurance Co.(A-/Stable/--)|
|Given its concentration in the northeast U.S. and exposure to losses from weather events in the region, we view GNY’s credit quality as more exposed to ESG risks than the broader P/C industry. We also believe the company’s business concentration could subject it to higher claim costs due to unfavorable legislation outcomes or heightened regulatory controls. While GNY is exposed to heightened losses from weather events in the northeast, especially winter storms, management actions in recent years, such as ice dam claim and per-unit water damage deductibles, have mitigated the potential for losses outside risk tolerances. Following outsize losses in 2010-2012, which generated an average combined ratio of 114.8%, GNY has realized more muted volatility in earnings, with an average combined ratio of 97.0% in 2013-2018, despite back-to-back above-average years (50 plus inches of snow) of snowfall in 2014 and 2015. Additionally, GNY’s active and long-term position in habitational real estate enables it to navigate regulatory and evolving judicial changes through active engagement and aggressive third party claims handling, limiting material volatility in earnings.||Veno, David|
|Great-West LifeCo Inc.(AA/Stable/--)|
|We see ESG credit factors for Great-West to be broadly in line with industry peers. The company’s main markets are Canada and Europe, and is also the second-largest retirement plan record-keeper by total participants in the U.S., and social factors, such as changes to longevity and mortality trends, mainly come from its sizable life and health insurance, annuity, health, and retirement savings businesses. We believe Great-West has an effective risk management program, sophisticated set of risk appetite statements, and solid track record of identifying, modeling, and managing risks. We expect the company to manage within its risk tolerances, and we regard social exposure as comparable to other life insurance peers. Management follows clear, well-constructed, and comprehensive financial policies and strategic priorities, and we regard its governance factors as being consistent with those we see across the industry. We view its exposure to environmental risk factors, largely via indirect exposure from investment activities balanced with its low use of physical infrastructure and facilities, as on par with the life insurance industry and it is neutral to our credit ratings.||Stein, Neil|
|Hartford Financial Services Group Inc. (The)(A+/Stable/A-2)|
|Hartford’s ESG credit risks are comparable with those of the broad insurance sector. Similar to industry peers, the company has moderate exposure to natural catastrophes but its diversified revenue base and use of reinsurance mitigates earnings volatility stemming from businesses susceptible to weather-related losses. In addition, social exposure associated with higher health-related claims attributed to legacy A&E reserves (year-end 2019 the company’s A&E net reserves were $1.1 billion), combined with adverse changes in mortality/morbidity trends affecting the Group Benefits business (Hartford’s Group Benefits contributed approximately 26% to the total $2.1 billion of core earnings and 32% of its $16.9 billion in total earned premium), could potentially undermine credit quality. However, we believe the company’s adverse development coverage, commitment to maintaining robust capital, effective risk controls, and track record of achieving both operational and strategic goals partially ease these concerns. The company’s risk-focused culture and effective use of risk-adjusted metrics have led to a more resilient, diversified, and less capital market-sensitive enterprise. Hartford changed its business mix after acquiring Aetna’s U.S. group life and disability business and sold its legacy volatile Talcott life and annuity business, using the proceeds to acquire specialty P/C writer Navigators.||Kwan, Patricia|
|Hochheim Prairie Farm Mutual Insurance Assn.(B+/Stable/--)|
|We view Hochheim’s credit quality as more exposed to ESG risks than the broader insurance industry given the company’s sizable exposure to Texas wind, hurricane, and hailstorms (as measured by its theoretical probable maximum loss relative to capital and surplus in excess of 100% for a 1-in-250 return period). Given the single state concentration, limited capital base with a statutory surplus of $82 million as of Sept. 30, 2019), and reliance on the reinsurance market, the company is at risk for volatile earnings with varying levels of balance sheet protection depending on weather conditions in Texas. This lags peers as most are better diversified from a geographic and line of business perspective with greater levels of capitalization moderating exposures significantly relative to Hochheim. We also believe the company could be subject to higher claim costs amid a surge in demand to repair and recover damage in these areas. While climate change, single state concentration, and active weather losses continuing in Texas could intensify environmental risk, the company has made significant progress in moderating aggregations, buying appropriate levels of reinsurance protection, and eliminating business creep into the urban markets, coastal counties, and litigious cities, which have provided unfavorable loss performance. We also view favorably management’s experience in the core markets, relationship with the agents who generally control local markets, and underwriting actions taken, including rate increases, raising deductibles, and portfolio cleanup to sustain better performance.||Suozzo, Brian|
|We see Humana’s exposure to key long-term ESG risks as in line with its peers in the health insurance sector. Like most health insurers, the company’s primary exposures are related to social factors because of health care’s importance to the economy and society. Key industry social risks include changing consumer preferences, the aging population, unsustainable national health care cost inflation, and persistent political/regulatory risk (as a result of the other risks). We believe Humana’s strong Medicare market shares make it among the best positioned to capture membership growth from the aging population. However, Humana’s substantial Medicare concentration (with Medicare premiums making up more than 80% of revenue) make it among the most vulnerable to Medicare program funding changes and compliance risks. With respect to governance, Humana’s highly experienced management team has done a good job in improving the company’s competitiveness and integrated care capabilities, such as through provider-focused acquisitions and joint ventures. Moreover, we favorably view management’s demonstrated long-term approach in terms of balancing Medicare membership growth with appropriate operating margins. As with most of its peers in the sector, the company has no significant exposure to environmental risks.||Sung, James|
|Lancashire Holdings Ltd.(A-/Stable/--)|
|Environmental risk factors play a larger role in our credit analysis of Lancashire than they do for peers. Relative to the size of its balance sheet, the company deploys large line sizes in severity products, including property catastrophe and energy. Lancashire’s exposure to environmental events increases the risk of earnings and capital volatility. In the past, Lancashire has weathered several losses while still generating an underwriting profit, such as Hurricanes Ike in 2008 and Sandy in 2012, and the Tohoku earthquake and tsunami in 2011. However, in 2017, the company generated its first full-year underwriting loss due to severe losses from Hurricanes Harvey, Irma, and Maria, Mexico earthquakes, and California wildfires, which affected its earnings and capital. Although the company has a robust enterprise risk management framework in place and manages these risks to lower points than historical levels, its net exposure remains materially higher than peers. For example, its Gulf of Mexico hurricane 1-in-250 year net probable maximum loss, represented about 17.4% of its year-end 2018 capital. Therefore, we believe Lancashire is exposed to the rising cost of insurance claims due to increased frequency and severity of weather-related events, which could be exacerbated by climate change. The company’s clients are largely other re/insurers, so we view its exposure to social factors as lower than those of front-line primary insurers, and governance factors as neutral and in line with the sector.||Khasnis, Saurabh|
|Liberty Mutual Group Inc.(A/Stable/--)|
|Similar to other large U.S. P/C insurers, Liberty Mutual has moderate exposure to environmental and social risks, and we view the company as broadly in line with its multiline peers. Our analysis of the group’s environmental risk takes into consideration its moderate property catastrophe exposure, which could be a source of capital and earnings volatility, as seen in 2017 when the combined ratio jumped to 105.6% from around 98% in the prior two years. However, we think that it is unlikely to experience losses greater than its risk tolerance given its diversified risk profile, strong risk modeling capabilities, and reinsurance utilization. The company is also exposed to health-related claims due to its legacy asbestos and pollution exposure, though this risk is mitigated significantly by reinsurance, including an adverse development cover, with highly rated reinsurers. The company’s exposure to social risk is similar to that of other global P/C insurers, including being susceptible to data privacy and security breaches that could damage its reputation and result in significant remediation costs and fines by regulators. Liberty Mutual’s investment strategy includes clear limits by individual obligor, sector, and credit quality that mitigate any emerging ESG-related risks that might affect the value of the securities it owns from an individual issuer or the companies in a particular economic sector.||Iten, John|
|Lincoln National Corp.(AA-/Stable/A-2)|
|Overall, we consider Lincoln Financial Group (LFG) to be in line with the sector in terms of ESG issues. LFG proactively manages its social capital by making charitable contributions to communities, organizing community service efforts for its employees, and collecting donations from employees for United Way. LFG has also invested millions of dollars to modernize and digitize its systems and customer-facing platforms, and collaborated with other insurers to educate the public on how to prepare for retirement. Although we view these efforts favorably, they do not differentiate LFG’s social risk exposure from peers’. LFG is a publicly traded group with an independent, risk-aware board. Senior management has consistently executed its strategy of focusing on four core businesses: life, annuity, retirement, and group protection. We have a favorable view of LFG's structured approach to strategic planning that integrates capital and liquidity management. It has a comprehensive system of financial standards and risk tolerances, and it tracks compliance with each via frequent, granular reporting. As Enterprise Risk Management departments have matured across the life insurance industry, we have come to expect this level of risk oversight, and thus, LFG’s governance does not differentiate its creditworthiness from its peers’. LFG’s environmental risk exposure is very low, on par with peers, and it does not negatively influence our credit ratings.||Pulcher, Katilyn|
|Loews' moderately high ESG risk exposure reflects its direct ownerships in P/C insurance, contract drilling, pipeline, containers and packaging, and lodging. Potential spills, while unlikely, are generally more difficult to contain in offshore wells. Cleanup costs, in addition to potential fines, can have material impact on reputation. Some subsidiaries operate in harsh environments (Diamond Offshore) and in areas prone to hurricane activities that could cause damage to equipment or properties, or harm employees. Extreme weather can also dampen tourist visitations (lodging) and increase claims cost (insurance). While the subsidiaries have insurance or reinsurance (CNA), they may be affected by larger-than-anticipated financial obligations, high deductibles, or increased regulatory scrutiny. While vulnerable to climate change, Loews provides no parental guarantee or explicit financial support to its investees. Three members of the Tisch family comprise Loews’s Office of the President: Andrew Tisch and Jonathan Tisch are cochairmen of the board, and James Tisch is CEO. They have been officers since at least 1987. The Tisch family has three seats on the company’s 12-member board of directors due to the family’s ownership stake in the company; the other board members are independent. Unlike other public companies, however, this structure has a family ownership concentration. Loews' governance structure has been consistent for nearly three decades, and we expect it to remain similar with a small team at the holding company level. The company's performance supports our view that the governance structure and small holding company team have been sufficient and have performed well. However, the small size of the holding company's management team raises issues about how the team will perform as the complexities of the company change and its various acquisitions continue to evolve. The team's track record has been successful, but this remains a modest concern and raises questions about sustainability.||Kwan, Patricia|
|Manulife Financial Corp.(AA-/Stable/--)|
|Manulife Financial Corp.’s (MFC) exposure to key ESG risks is very similar that of other global life insurers. MFC is a geographically diverse provider of life insurance and diversified financial services with earnings that are approximately evenly divided among Canada, Asia, and the U.S. (where it operates as John Hancock). As such, its primary drivers of ESG exposure are social and include the shifting dynamics of the insurance and retirement services spaces in the U.S. and Canada, and long-term demographic trends in Asia. MFC’s management team has recently renewed its focus on portfolio optimization and expense efficiency and has prioritized growth in high-potential Asian markets and global wealth and asset management. The company has worked on improving engagement with policyholders, particularly through its behavioral insurance initiative in the U.S. The company has a formal risk appetite statement and generally remains well within its risk tolerances. The company’s exposure to environmental risks is low, as is the case for most of its peers in global life insurance.||Poon, Peggy|
|Massachusetts Mutual Life Insurance Co.(AA+/Stable/A-1+)|
|MassMutual’s exposure to ESG risks is in line with that of other life insurers. MassMutual has a multichannel distribution strategy to reach its diverse customer base and offers a wide product set, anchored by participating whole life, alongside institutional solutions, fixed annuities, disability insurance, long-term care, and general account bank-owned life insurance. MassMutual Financial Advisors has a network of over 8,800 financial advisers also benefiting from its acquisition of MetLife Premier Client Group in 2016. Its primary ESG exposures are therefore social risk factors such as the aging global population and increased longevity. The shifting dynamics of the retirement market are both a source of opportunities and risks for the company. Management has consistently demonstrated strong commitment to mutuality and policy owners, distribution, and core participating whole-life products. We believe MassMutual will focus on its core U.S. insurance operations while having a presence in international and noninsurance markets, mostly by way of minority ownership or service agreements rather than fully owning subsidiaries. The company’s exposure to environmental risks is, like many in the life insurance sector, limited.||Abhyankar, Heena|
|We see MetLife Inc.’s (MET) ESG exposure to be similar to that of its industry peers, with social risks making up the majority of its ESG risk exposure. MET is among the largest life insurers globally ($743 billion in total assets, including $190 billion of separate account assets as of Sept. 30, 2019), and it is geographically diverse and has solid market positions in its core products and jurisdictions. Global trends such as increasing longevity, risks to social safety net programs and the shift of retirement planning to individuals create both opportunities and challenges for the company. In our view, MET's governance is neutral and in line with industry peers. The company has a well-engrained risk management framework and a well-defined risk appetite. It also has a clear strategic planning process with a risk appetite for each division. We also view MET's spinoff of Brighthouse Financial, Inc. as instrumental in lowering its earnings volatility and limiting its long-tail liability exposure. MET’s exposure to environmental risks is limited, stemming mostly from is relatively small personal lines property and casualty insurance business.||Abhyankar, Heena|
|National Western Life Insurance Co.(A-/Stable/--)|
|We consider National Western Life Insurance Co.’s (NWLIC) exposure to environmental and social risk factors as on par with the broader life insurance industry. In our view, NWLIC’s governance risk is outsized, relative to the rest of the insurance companies we rate, because its holding company, National Western Life Group Inc., (NWLGI) is a controlled company. Some of the controlling shareholder’s relatives sit on NWLGI’s board, as do others with personal ties to his family. Our concerns about the influence of family members on the board influence our rating on NWLIC because we do not view its ERM process as suitably independent from the senior management team, such that there would be sufficient review and challenge to senior management's decision-making. Its exposure to social risk factors, primarily shifting demographic trends in the U.S. and the changing nature of the retirement business, are similar to those of its peers. Like most companies in the life insurance sector, it has limited exposure to environmental risks.||Pulcher, Katilyn|
|Nationwide Mutual Insurance Co.(A+/Stable/--)|
|As a large domestic multiline mutual insurance company, Nationwide is exposed to moderate ESG risks given its exposure to natural catastrophes and long-term risk such as regulatory, tort reform, longevity, and technology displacements. While Nationwide has been exposed to elevated catastrophe losses and a source of earnings volatility in recent years, the company has an effective risk management process that aims to mitigate this volatility with both reinsurance contracts to hedge risks and underwriting actions to limit exposure in catastrophe-prone areas. Last year, Nationwide further reduced its reinsurance retention and has an aggregate policy in place to help reduce volatility from both large and frequent catastrophic events. Nationwide is involved with regulators to stay on top of any pending legislative changes, and its effective ALM strategy minimizes its exposure to longevity risk. Like many personal auto writers, the company faces long-tailed technology displacement with autonomous vehicles, but Nationwide's significant presence in other diversified operations reduces this risk. We view governance as neutral to the rating given its board independence, deep bench of expertise, and formal strategic planning process||Guijarro, Stephen|
|New York Life Insurance Co.(AA+/Stable/A-1+)|
|New York Life’s (NYL) ESG exposure is similar to that of others in the broader life insurance sector. NYL’s operations are mainly exposed to social risk factors such as increasing longevity, risks to social safety net programs, and the long-term demographics trends in the U.S. The company has a top market position in direct insurance sales and guaranteed lifetime income. It has been very successful in its strategy of selling whole life insurance to the underpenetrated U.S. middle market, largely due to its 12,000 career agents. Its agency strategy includes a "cultural market" focus that allows it to expand successfully into markets that many other life insurance companies tend to ignore. This positions the firm well to deal with the changing demographics in the U.S. Its cultural market agents, accounting for about half of NYL's proactive agents, sold a significant proportion of agency life. It has a conservative risk management culture with a demonstrated commitment to enterprise risk management and a well-defined risk appetite statement with clearly articulated overarching risk limits based on different stress levels. We regard its risk oversight by the board of directors, risk management leadership teams, and risk committee structure favorably. As with many of its peers and competitors, the company has minimal exposure to environmental risks.||Poon, Peggy|
|Northwestern Mutual Life Insurance Co. (The)(AA+/Stable/--)|
|Northwestern’s ESG exposure is very similar to other life insurers in the U.S. The company is a market leader in participating whole life insurance business supported by ancillary non-life and investment-related products. Northwestern has a dedicated team of sales representatives, and we believe this field force is highly effective and loyal and that this will continue to be a source of sustainable competitive advantage. The primary ESG risks the company is exposed to, as a life insurer, are social risks such as increasing longevity, risks to social safety net programs, and the shifting consumer preferences. Management is well seasoned with a strategy that emphasizes long-term stability and strength, and a commitment to mutuality and policyholders. It has shown consistent commitment to its core individual life insurance products and distribution. The company has a formal, quantified risk appetite statement, a clear channel of communication between business units and respective risk functions, and obvious ties between risk and compensation. The company has limited exposure to environmental risks, as do many others in the life insurance sector.||Getubig, Anika|
|Pacific Life’s ESG risk exposure is similar to that of other life insurers globally. Pacific Life is globally diverse and primarily caters to the affluent market for both life insurance and retirement services; it also has a well-established institutional platform. Like most of its peers in the life insurance sector, social risk factors such as the aging global population, increased longevity, and the shifting dynamics of the retirement market are both a source of opportunities and risks for the company. The company’s recent divestment of its majority stake in ACG, an aircraft leasing company, brings its environmental exposure in line with that of other life insurers; although we do not believe this exposure has had any impact on ratings in the years prior to the sale. Pacific Life's governance is neutral and in line with industry peers. The group has a well-engrained risk management framework, a well-defined risk appetite and principles for responsible investing. It has successfully executed its strategy toward expansion of its international reinsurance operations, as well as the sale of the ACG.||Abhyankar, Heena|
|Principal Financial Group Inc.(A+/Stable/--)|
|Overall, we consider Principal Financial Group Principal (PFG) to be in line with the sector in terms of ESG issues. PFG has diverse portfolio of businesses that includes retirement solutions and life insurance in the U.S. and asset management services globally. Its broad geographic reach and business focus make it more exposed to social risks rather than governance or environmental ones. We believe these social risks (e.g., serving an aging population, and the shifting dynamics of the retirement market) also present the company with opportunities, both of which are well managed by PFG and are reflected in our ratings. PFG’s governance does not hurt our credit rating. Its board of directors is overwhelmingly independent (10 of its 11 members), and a well-staffed, fully independent enterprise risk management (ERM) department oversees all of the operations, enterprisewide and heavily influences strategic decision-making. The risk-aware board meets frequently with the chief risk officer and other ERM professionals, as necessary. As ERM departments have matured across the life insurance industry, we have come to expect this level of risk oversight, and thus, PFG’s governance does not differentiate its creditworthiness from its peers’. The company’s exposure to environmental risks is limited, given its business focus on life insurance, retirement, and asset management.||Pulcher, Katilyn|
|Prudential Financial Inc.(AA-/Stable/A-1)|
|Prudential Financial’s (PRU) exposure to ESG risk factors is in line with the global life insurance sector. PRU is a well-diversified insurer that operates in multiple segments, including life insurance, annuities, retirement, group insurance, and asset management. Roughly half of its earnings is generated by its U.S. businesses and the other half by its international operations. These markets primarily expose the company to global social risks factors such as changes in longevity and mortality trends, shifting consumer behavior, and the dynamics of retirement planning. PRU has identified its ESG risks and published a materiality assessment in its annual sustainability report. This identification should allow the company to further improve its ESG risk management in the future. PRU's governance is supported by its highly experienced and capable management team and its demonstrated ability to execute strategies consistently. In 2018, the company announced the retirement of two members of its senior management team. PRU was able to use its succession-planning process for these major leadership changes and filled these positions with internal candidates. Like most life insurers around the world, the company’s exposure to environmental risks is limited.||Banerjee, Deep|
|Reinsurance Group of America Inc.(AA-/Stable/--)|
|RGA’s ESG exposure is similar to that of its peers in the global life reinsurance sector, in our view. As with many life insurers, social risks make up the majority of its ESG risk exposure. The company has a top-three position as a global life and health reinsurer, as well as its top market shares in many key geographies. In 2018, 66% of RGA's revenue came from mortality, 23% from morbidity, and 11% from its Global Financial Solutions. RGA has also made strides in diversifying geographically, with a higher percentage of total gross premiums coming from Europe, the Middle East, and Africa, and Asia-Pacific over the past two decades. As such it is primarily exposed to social risk factors, which include the aging global population, increased longevity, and rising health care costs. In our view, RGA's governance practices are in line with public company standards: It has a relatively independent board and no outsize influence by any activist investors. Generally, we view the company's risk-management culture as favorable. The company has demonstrated a commitment to ERM, with strong support from senior management, a well-delineated ERM governance structure, and a risk appetite statement with overarching risk limits. RGA’s exposure to environmental risks is limited, as the only specialist global reinsurer without exposure to P/C risks.||Poon, Peggy|
|RenaissanceRe Holdings Ltd.(A+/Stable/--)|
|Environmental considerations are a major factor in our credit analysis of RenaissanceRe. As one of the leading property-catastrophe reinsurers, with about half of its premiums attributable to this line of business, the company is exposed to the increase in frequency and severity of weather events, which could be influenced by climate change. RenaissanceRe’s catastrophe exposure relative to its earnings and capital is towards the higher-end of its peer group. As such, we expect significant underwriting losses and potentially a hit to its capital in periods of heightened natural catastrophe activity, as happened in 2017. However, RenaissanceRe’s strengths are its sophisticated enterprise risk management, robust process for evaluating catastrophe risk/reward trade-offs, advanced modeling and research capabilities, and ability to match well-structured catastrophe risk exposures with the most efficient sources of capital (internal and third-party capital). These strengths have helped the company to effectively manage its net exposures and have fueled strong underwriting performance despite the inherent business volatility. The company’s clients are largely other re/insurers, so we view its exposure to social factors as lower than those of front-line primary insurers and governance factors as neutral and in line with the sector.||Manku, Hardeep|
|Sun Life Financial Inc.(AA/Stable/A-1+)|
|Sun Life Financial’s (SLF) exposure to ESG risk factors is in line with other global life insurers. The company has broad geographic and business diversity, with leading market positions in group and individual life insurance in Canada, U.S. group benefits, asset management, and its Asia business, which sells life insurance in Hong Kong, the Philippines, Indonesia, and Malaysia, among others in the region. The company’s ESG risk exposure lies mainly in the social arena and are centered on the shifting dynamics of the life insurance and retirement services spaces in the U.S. and Canada, and long-term demographic trends in Asia. Sun Life's governance practices are in line with public companies. It has clear performance and operational goals and strategies, which it lays out to the market and systematically tracks. The company has robust internal financial reporting and conservative risk tolerances that show its strong ERM program that's embedded in the organization at all levels. The breadth and depth of management are strong, and the board regularly evaluates succession plans. Management has a track record of converting strategic decisions into action and meeting its financial and operational goals. Like most companies in the life insurance sector, its exposure to environmental risks is minimal.||Poon, Peggy|
|Teachers Insurance & Annuity Association of America(AA+/Stable/--)|
|We view Teachers Insurance & Annuity Assn. of America’s (TIAA) ESG exposure to be in line with that of the broader life insurance sector. TIAA's core focus is on annuity products and retirement plan administration. The company has a No. 1 market position in the niche higher education not-for-profit defined contribution market, with an approximate 79% market share over the past several years; it hold the top position in the not-for-profit defined contribution market for K-12 institutions, with 18% market share; and it holds the No. 2 position in the not-for-profit defined contribution market for health care institutions, with 14% market share as of year-end 2018. Its main ESG risk factors are social, such as trends in the U.S. retirement market, an aging population, and, to a lesser extent, societal shifts in the education sector. We believe these risks are well reflected in our ratings. TIAA has appropriate strategic planning and comprehensive financial and operational standards. The company has robust risk governance processes in place, reflecting a risk-focused culture that permeates throughout the organization. Risk appetite statements use both qualitative and quantitative measures and look at tolerances from both a marked-to-market and statutory accounting perspective to support appropriate risk taking that aligns with strategic planning. As with many of its peers and competitors, the company has minimal exposure to environmental risks.||Getubig, Anika|
|The Travelers Cos. Inc.(AA/Stable/A-1+)|
|Travelers’ environmental exposure is broadly in line with many of its peers such as Hartford Financial, Chubb, Nationwide, and Liberty Mutual, as well as the U.S. P/C sector. In line with industry peers, the company has material exposure to natural catastrophes, as evidenced by back-to-back record years of losses resulting from wildfires and hurricane activities. In 2017 and 2018, Travelers incurred about $1.2 billion and $1.1 billion from weather-related losses, respectively, which represented about 4% of total shareholders' equity for both years. This is compared to the industry average of about 5% of total statutory surplus. Moreover, we believe that the company is unlikely to experience losses greater than its risk tolerance given its diversified risk profile, strong risk modeling capabilities, and effective use of reinsurance. While the company is also susceptible to health-related claims due to its legacy asbestos and pollution exposure, we believe this risk is mitigated somewhat by reinsurance with highly rated reinsurers. As part of the company’s recent actions to reduce wildfire risk, it increased its usage of probabilistic models to assess vulnerability and potential for financial losses. Moreover, the company expects to manage its appetite for wildfire exposure through underwriting changes, in addition to rate increases. We view favorably the company’s continued improvement on its predictive analytical tools that should lead to more refined underwriting and pricing, as well as its commitment to maintain a strong balance sheet with robust capital commensurate with the ratings. Lastly, we believe both social and governance credit factors are not material to our opinion of the company’s creditworthiness. While we continue to view Travelers' governance practices as a strength, our governance assessment does not provide any uplift to the ratings.||Iten, John|
|UnitedHealth Group Inc.(AA-/Stable/A-1)|
|UnitedHealth Group Inc. (UNH) has ESG risk exposure, which is broadly in line with that of the U.S. health insurance industry. UNH is a large, diversified U.S.-based health care company that operates two distinct business units: UnitedHealthcare (the largest health insurer in the U.S.) and Optum, which consists of three businesses: OptumRx, pharmacy services; OptumHealth, health plan services and health care delivery; and OptumInsight, technology and consulting services. This business mix dictates that the company is primarily exposed to social risks, including political and regulatory risks, aging demographics, and changing consumer preferences. We believe UNH understands these risks fairly well as they appear to be well-embedded in its long-term strategy and mission, and are reflected in our ratings on UNH. We believe UNH's strategic, business, and financial strengths are underpinned by its strong risk management culture. UNH has a well-structured ERM program with good oversight and involvement by the board of directors and senior management. Like many in this sector, its exposure to environmental risk factors is limited, especially when compared to property and casualty insurance companies.||Sung, James|
|Ratings as of Feb. 10, 2020. *Issuer credit rating; we included Loews Corp., an investment holding company, given its ownership of CNA Financial Corp.|
This report does not constitute a rating action.
|Primary Credit Analysts:||Patricia A Kwan, New York (1) 212-438-6256;|
|Lawrence A Wilkinson, New York (1) 212-438-1882;|
|Secondary Contacts:||Tracy Dolin, New York (1) 212-438-1325;|
|Deep Banerjee, Centennial (1) 212-438-5646;|
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