Adding ESG features to ILS not a guaranteed win-win: Gallagher’s Dubinsky

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Bill Dubinsky, Chief Executive Officer of Gallagher Securities, has cautioned that building in more ESG features is potentially helpful but “by no means a guaranteed win-win” for the catastrophe bond product, or for ILS more generally.

The Gallagher executive expects insurance-linked securities (ILS) managers and many end-investors to remain focused on climate and ESG.

In fact, he believes that the market will return to these considerations “with force”, having largely spent the second half of last year preoccupied with losses from Hurricane Ian and the impact of inflation on modelling uncertainty.

“2023 should prove interesting as various sponsors and investors try to advance their respective approaches,” Dubinsky noted.

He added that the disconnect on ESG between different parts of the world, and even within the different parts of the US, should create both challenges and opportunities for ILS and the reinsurance market more broadly.

“As an intermediary, we need to bridge gaps where they exist to facilitate mutually beneficial trading relationships,” Dubinsky explained.

But while the CEO acknowledged that the addition of more ESG features to ILS products could certainly help to raise more capital, he warned that there may also be some serious downside considerations.

“To the extent that ESG disclosure turns out to make cat bonds significantly more complex and burdensome than either collateralized re or traditional reinsurance, it may counterintuitively produce less ESG investible ILS,” he commented.

Dubinsky further suggested that differing views on ESG requirements between various countries, regions and types of investors could complicate the issue and become off-putting to some, particularly amid rising political tensions.

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“We certainly hope not but sometimes ESG disclosure requirements seem to be splintering rather than coalescing although perhaps consensus is slightly ahead at halftime,” Dubinsky concluded.

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