KBRA clarifies framework for incorporating ESG risk management in credit ratings

Kroll Bond Rating Agency (KBRA) has released the results of research into its approach to incorporating environmental, social, and governance (ESG) factors in the credit rating process for re/insurance companies.

The company said that the diversity of organisational structures, regulatory regimes, liability exposures, and distribution channels across the re/insurance industry will likely translate into a range of ESG touchpoints that vary widely by sector and market.

“Consistent with our overall rating framework, KBRA will consider the credit impact of ESG factors within the unique business context of each re/insurer,” the company stated.

“When analysing climate risk for insurance companies, we consider climate-related exposure, including exposure to physical risks like sea-level rise, drought, and other extreme weather events, as well as transition risks, which are indirect and relate to an entity’s ability to adjust to a changing regulatory environment along with changes in overall insurance market dynamics.”

For social factors, KBRA will focus on how management has identified its stakeholders, assessed potentially competing interests, and calibrated its approach within the context of the re/insurer’s overall corporate strategy.

“ KBRA’s rating process for re/insurers will continue to incorporate an assessment of governance structures and their appropriateness relative to the size and complexity of the entity but will also include a specific line of inquiry to highlight explicit strategies or programs to address ESG issues, with a particular emphasis on cybersecurity,” KBRA stated.

Click here to view the report.

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