Evidence for the moderating role of environmental, social, and governance on the profitability of insurance companies

Insurance companies strive to incorporate environmental, social, and governance (ESG) in their businesses, as managers recognize that strong ESG performance is necessary to guarantee access to capital and enhance company value (Di Tommaso & Mazzuca, 2023; Eling, 2024). This article focuses on the moderating role of ESG in determining insurers’ profits, analyzing a panel data set covering insurance companies worldwide during the period 2013 to 2024. The results reveal that high ESG ratings amplify the association of profits with underwriting premiums while weakening the dependence of profits on investments. Additional outcomes show that ESG has an effect on the composition of the investment portfolio, inducing insurers to have larger shares of assets invested in debt securities than in equity-type securities. These findings are important for insurance executives, providing deeper insight into how the improvement of ESG dimensions impacts profits from separate channels, while also having an influence on investments. Understanding the dynamics of insurance profits is relevant from a supervisory perspective, too, as a sound and well-performing insurance sector is crucial to preserve stability at the systemic level.