According to an ESG (Environmental, Social, Governance) report by S&P Global, Suncorp Group Limited is the only Australian insurance entity with a negative ESG credit indicator. Suncorp received an E3, which is classified as a moderately negative influence on credit ratings, for its exposure to physical risks.
“The only Australian entity that we have as an E3 is Suncorp,” said S&P credit analyst, Craig Bennett (pictured), the main author of the ESG Credit Indicator Report Card: Asia-Pacific Insurance.
However, Bennett said it was important to note that these are assigned after the credit rating.
“So they’re not an input to the rating they’re an output from the rating,” he said.
The aim of the ESG Credit Indicator Report Card, he said, is to be more transparent about how ESG factors are playing on components of the credit rating.
The reason for the moderately negative E3 rating was Suncorp’s exposure to banking and natural catastrophe risks, said Bennett.
“We adjust down our capital and earnings assessment on the insurer to reflect its exposure to natural catastrophes in Australia and New Zealand, as well as its regional banking concentration in Queensland,” said the ESG report.
The report went on to explain that Suncorp’s natural catastrophe exposures across Australia and New Zealand make it “vulnerable to earnings volatility.”
According to Bennett, the physical risk component is the most likely part of the environmental rating to impact a credit rating. However, only about 10% of Asia-Pacific insurance companies rated by S&P scored an E3 in the report.
“It’s effectively recognizing that they [Suncorp] provide insurance across Australia and they’re a little bit overweight in insurance in Queensland, which is typically more cat [catastrophe] prone,” said Bennett.
He said Suncorp’s insurance exposure and footprint was quite similar to IAG [Insurance Australia Group] apart from their banking commitments through Suncorp-Metway.
“When we then capture their bank, Suncorp-Metway, they’ve got quite a larger exposure to Queensland as well. So when you load that in, together with the insurance exposure, it was a little bit more than what we see elsewhere,” said Bennett.
He said if Suncorp’s banking arm expanded more into other states away from catastrophe prone Queensland, that could lead to a move back to a rating of E2. This rating has a neutral or no influence on credit ratings.
“We’ve just recognized the higher potential volatility of future earnings because of its [Suncorp’s] higher level of exposure to Queensland,” said Bennett.
ESG indicators are fast becoming important to insurance companies as industry investors take more notice of issues like climate change, employee engagement and the composition of boards.
ESG metrics are not usually mandatory for financial reporting. However, according to the US-based CFA Institute, investors are increasingly applying these non-financial factors to identify where they want to put their money.
“These ESG factors, in a broad sense, have already had impacts on ratings and what we’re trying to do here [in the report] is to say, how, and what area has been impactful and whether it’s positive or negative,” said Bennett.
During the past couple of weeks, Australia’s East Coast has endured storms, flash flooding, heavy winds and hail.
In the Queensland town of Maryborough, where the Mary River broke through its levee, flood levels peaked at 10 metres after 650mm of rain.
Suncorp has supported Queensland SES volunteers as they responded to the Maryborough community.
“We are working as safely and as quickly as we can to provide support for our customers and communities and our customer support team is on standby for deployment or to support virtually,” said Cath Stewart, head of disaster response & event claims.
The insurer has also set up a new Event Control Centre, which has elevated its disaster readiness and its ability to proactively support customers.
Last week, Suncorp also welcomed the Labor government’s plan to commit $200 million a year towards disaster prevention.
“Effective investment that reduces the impact of extreme weather will result in safer communities, stronger economies, and will reduce cost of living pressures through lower insurance premiums,” said Suncorp CEO Steve Johnston.
Suncorp also said that it would welcome the opportunity to work with all levels of government and stakeholders to help prioritise resilience projects to communities that need them the most.