Jan 8, 2021

McKinsey: Insurance could help fight climate change

McKinsey
Climate Change
Insurance
Green economy
William Girling
3 min
McKinsey: Insurance could help fight climate change
Earlier this week, we explored Artemis’ research on the growing cat bond insurance market, which reached US$11bn as of last year...

Earlier this week, we explored Artemis’ research on the growing cat bond insurance market, which reached US$11bn as of last year.

Combined with Swiss Re’s study of natural catastrophe-related claims in December, a primary antagonist to insurance’s future potential has been defined: climate change.

In a timely new post, McKinsey & Co discussed this very topic, not only exploring the ramifications of its effects in the short- and medium-term but also the long-term changes that insurance itself could help bring about to reduce its impact.

Investing in the green economy

Dickon Pinner, Senior Partner and Global Leader of McKinsey’s Sustainability practice, stated that a “big switch” has occurred in those taking a leadership role in the debate. Whereas once it was the energy and automotive sectors, finance, particularly banking, has sparked the exploration of how severely climate change could affect economies.

“People are very interested in how to invest and put new money to work into the kind of new green economy. And then insurance within that plays a critical role in terms of transferring and mitigating risk.”

The environmental deterioration that has seen frequent and devastating wildfires in Australia and California, USA, could be the writing on the wall that historical models of predictive insight no longer hold true. Kia Javanmardian, Senior Partner, is ambivalent about how this will ultimately change contemporary attitudes:

“There’s a bit of difference in opinion on ‘Can I just price this in over time?’ versus ‘Do I need to make a more proactive stance?’ And I think the jury is a bit out in terms of where the industry is leaning on that dimension.”

Antonio Grimaldi, Partner, considers that insurers are, in general, beginning to move in the right direction to address the issue. However, he caveats, there is still much more to be done, from increasing resilience across the board to developing new underwriting solutions that cater to new market conditions.

Javanmardian adds that insurers becoming more conscious of their investment portfolios could also be a significant step: 

“We’re starting to see a bit of thinking in terms of what they’re willing to put money behind, partly reputationally, partly as an ESG measure. I think it is more pronounced in Europe than in the US, given the regulatory environment.”

Collaborating on responsibility

Furthermore, Grimaldi believes that European companies are more actively focused on becoming “responsible” investors and underwriters, “I think this is, in my mind, one of the very interesting angles that the industry could utilise in order to overcome some of the short term-ism that the industry might have, given the annual policy cycle.”

Finally, a key point raised by McKinsey as a whole is the necessity for strong collaboration between the public and private sectors to mitigate risk and benefit event preparedness. 

“Even days’ or weeks’ notice of an upcoming event, you can make a material difference if you can prepare for it, but that does require a public-private partnership. So a big role to play on such a complicated topic,” Pinner concludes.

Share article

Jul 15, 2021

AIG to sell US$7.3bn of insurance assets to Blackstone

AIG
Blackstone
Insurance
equity
2 min
AIG is selling a 9.9% equity stake in its life and retirement business to Blackstone for US$2.2bn and housing assets for US$5.1bn.

American International Group Inc. (AIG) has agreed to sell insurance assets to Blackstone Group Inc. for a total of US$7.3bn. The sale will be split into a 9.9% equity stake to be sold for US$2.2bn, and affordable housing assets for US$5.1bn.

The insurer and private equity firm have agreed to form a “long-term strategic asset management relationship” for an initial $50 billion from the life and retirement portfolio, with the deal building on two of Blackstone’s initiatives: to build permanent capital by expanding into insurance and to pursue lower-cost rentals for its real estate business. 

AIG-Blackstone asset management deal to grow to US$92.5bn in the next six years 

The asset management deal between AIG and Blackstone is expected to reach a value of US$92.5bn within the next six years. Jon Gray, President and Chief Operating Officer of Blackstone, said: “We are honored to become AIG’s strategic partner, supporting the growth and success of one the world’s top life insurers as a standalone business. We believe our leading private credit origination platform will play an important role to help meet long-term policyholder obligations while maintaining strong credit quality”. 

In May earlier this year, Blackstone told the San Diego Union-Tribune that it was purchasing around 5,800 apartments in San Diego from the Conrad Prebys Foundation for a sale price of over US$1bn. The company said that it was going to keep most of the rentals affordable for residents who make up “80% or less of the area median income”. 

Following this announcement, AIG saw a rise in extended trading by 6.7%, closing at US$46.41 in New York. Meanwhile, Blackstone rose about 4% and closed at US$98.65. 

An attraction to insurance 

Blackstone, as well as other private equity businesses such as Apollo Global Management Inc. and KKR & Co., have been attracted to insurance because it generates a steady stream of investable capital. This expansion in permanent capital helps firms become less reliant on the ups and downs of the private equity model, which normally requires regular fundraising from several institutions.

Investment companies have also benefited from a movement by insurers to dispose of life businesses and reduce non-core assets in order to raise capital. In January, Blackstone purchased a life business from Allstate Corp. for US$2.8bn, enabling the company to oversee a US$28bn portfolio as part of the deal.

 

Share article