Evidence for the moderating role of ESG on the profitability of insurance companies

Evidence for the moderating role of ESG on the profitability of insurance companies | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Evidence for the moderating role of ESG on the profitability of insurance companies Silvia Bressan, Sabrina Du This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6534211/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Insurance companies strive to incorporate ESG in their businesses, as managers recognize that strong ESG performances are necessary to guarantee access to capital and enhance company value (Di Tommaso and Mazzuca, 2023; Eling, 2024). This article focuses on the moderating role of ESG in determining insurers’ profits. The findings reveal that high ESG ratings amplify the association of profits with underwriting premiums, while weakening the dependence of profits from investments. These findings are important for insurance executives, providing deeper insight into how the improvement of ESG dimensions impacts profits from separate channels. Understanding the dynamics of insurance profits is also relevant from a supervisory perspective, as a sound and well-performing insurance sector is crucial to preserve stability at the systemic level. JEL Codes: G22; G30. Finance Insurance companies profitability ESG underwriting investments 1 Introduction The insurance business is fundamentally about mutualizing and managing risks, which are closely tied to environmental, social, and governance (ESG) criteria. Insurers have long recognized that a robust governance structure and understanding the consequences of climate change and environmental disasters can benefit multiple aspects of their business and protect the company’s value. Recent literature shows that insurers with high ESG ratings are financially more stable (Chiaramonte et al., 2020; Bressan, 2023a), and have a higher market valuation (Di Tommaso and Mazzuca, 2023; Bressan, 2023a). Nevertheless, it remains uncovered by the literature whether the ESG characteristics of insurers influence profits. This paper contributes by bringing new knowledge on this topic. The next section will develop working hypotheses aimed at establishing whether ESG has a moderating role in determining the two main sources of insurers’ profitability, namely underwriting and investments. The main findings are that strong ESG characteristics enhance the dependence of profits on premiums, while profits are less related to investments when ESG ratings are high. The interpretation is that robust ESG criteria improve the claim management of insurers, leading to more stable and predictable liabilities in the future, which they match with a less aggressive (while also less rewarding) investment. Moreover, additional results 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. This evidence is important for academics and insurance managers. The findings support previ- ous literature showing the positive effect of ESG on insurance profits (Brogi et al., 2022; Bressan, 2023b), while also proving that such an effect would be better understood by considering in more detail the different sources of profitability. In particular, this study is the first research showing that insurers’ ESG ratings are significantly associated with the asset composition. This is especially important for executives, who could better understand the way in which incorporating ESG values in the business would ultimately reflect on profits. Finally, the dynamics outlined in the paper are interesting for supervisors too, because a financially healthy insurance sector has a pivotal role in the well-functioning of the economic environment. The article is organized as follows. Section 2 reviews the literature and develops the working hypotheses. Section 3 outlines the data and the regression models. Section 4 describes the results. Section 5 concludes. 2 Literature review and working hypotheses The literature on corporate ESG has largely focused on non-financial firms. However, a recent strand of research has also examined the ESG performance of insurance companies, exploring the association with aspects such as financial stability (Chiaramonte et al., 2020; Bressan, 2023a) and stock market valuations (Di Tommaso and Mazzuca, 2023; Bressan, 2023a). Brogi et al. (2022) build a scoring model for the ESG awareness of the insurance company, showing that firms with the highest level of ESG awareness are larger, more profitable, and solvent. From a variety of insurer- specific indicators, Brogi and Lagasio (2019) construct an ESG index that is found to be positively associated with profitability. Khovrak (2020) outlines an ESG-driven approach to manage a more sustainable development of insurance companies. Finally, Bressan (2023b) shows that the purchase of reinsurance decreases in the company’s ESG score, thereby making the firm more profitable. 1 However, previous literature has primarily considered the direct impact of ESG on the financial dimensions of insurers. Building upon this knowledge, the following discussion focuses on the moderating role of ESG in determining the profits of insurance companies. The objective is to build testable hypotheses that explain how ESG can influence the dynamics that drive insurers’ profitability. In fact, the main source of profit for insurance companies is the sale of insurance products, but they also generate revenue by investing premium income that is not being paid out to customers to cover losses. The following two hypotheses establish how insurers’ ESG ratings influence the way in which profits depend on underwriting and investments. The evidence in Bressan (2023a) shows that high ESG insurers are financially stable and underwrite more policies. Similarly, Chiaramonte et al. (2020) report that default risk decreases for insurers that have high ESG ratings. The recent study conducted by the insurance broker Howden (2022) found that high ESG insurers experienced low losses, improving their underwriting performance. 2 Moreover, ESG facilitates easier access to capital markets, as the continued growth of green and sustainable funds compels insurers to enhance their ESG ratings to maintain full access to capital. 3 Carannante et al. (2024) develop a model suggesting that increasing engagement in ESG activities leads to an improvement in the insurance company’s reputation, to the extent that policyholders are willing to pay extra for the insurer’s commitment to ESG. Therefore, a strong ESG performance will likely allow the insurer to process insurance claims more efficiently, which is crucial for companies in the event of a loss. The positive effect of ESG on claim management brings the expectation that a well-performing ESG insurer would earn a high income from its underwriting operations, ultimately increasing profits. In other words, working hypothesis 1 (WH1) states that ESG moderates the positive effect of underwriting on profits: WH1: The positive effect of underwriting on profits is stronger for high ESG insurers. The literature has not covered the relationship between ESG performance and insurers’ in- vestments. Previous articles have examined other important characteristics of investments made by insurance companies. These include, for example, time-variation of investments related to the economic cycle (Fache Rousov´a and Giuzio, 2019), the measurement of investment risk (Hue et al., 2019), and how financial constraints can shape investment (Ge and Weisbach, 2021). Some papers primarily focus on fixed income investments (Knox and Sørensen, 2024), while other articles discuss equity-type investments (Garavito et al., 2024), or examine the portfolio composition of both asset classes (Liu and Yang, 2004). However, the literature does not address whether insur- ers’ investments account for the company ESG performance. As insurers invest premiums received from customers, they generally choose assets with features aligned with the characteristics of the insurance products they sell. This means that the risks from insurance liabilities should balance with the risks undertaken through investment activities. Put differently, insurers should invest the available funds in line with statistical expectations of loss in the future (Koˇcovi´c et al., 2011). If a high ESG insurer has better claim management, the firm is likely to face less volatile cash flows in the future, being capable of anticipating and managing future losses. This implies that the firm would be less inclined to invest in highly volatile (and highly rewarding) securities. In contrast, low ESG firms would be willing to select investment securities with a risk-reward profile that tracks more uncertain cash flows in the future. As a result, the profits of low ESG firms reflect investment earnings in a larger share compared to high ESG firms. That is, working hypothesis 2 (WH2) states that ESG weakens the effect of investments on profits: WH2: The positive effect of insurers’ investments on profits is lower for high ESG insurers. Finally, the third working hypothesis relates ESG to the investment portfolio composition, which consists of debt and equity securities. Based on the previous arguments, the hypothesis is that low ESG insurers would exhibit a higher propensity to invest in equity securities, which offer high returns but also expose them to significant market risks. In contrast, high ESG firms rely on predictable and stable cash flows over time, leading firms to invest their premiums in more stable debt instruments. Therefore, working hypothesis 3 (WH3) states the following: WH3: High ESG insurers invest larger shares of their investment portfolios in debt securities, while lower shares in equity securities. 1 A few articles in the recent literature have focused on environmental aspects, for example addressing the question whether financial dimensions of insurers are affected by greenhouse gas emissions (Bressan and Du, forthcoming) and natural disasters (Gupta et al., 2023; Montero et al., 2024). 2 https://www.howdengroup.com/news-and-insights/higher-esg-ratings-lead-to-improved-underwritin g-performance. 3 https://www.ey.com/en_jo/insights/insurance/esg-and-access-to-capital-why-insurers-must-stay-f ocused-on-ratings. 3 Methodology 3.1 Sample and variables The study employs a panel data set covering insurance companies worldwide during the period 2013 to 2024. The firms are all publicly listed and are in operation during the study period. Balance sheet data and ESG ratings are sourced from S&P Global. 4 Table 1 displays the composition of the sample across insurance segments, i.e. financial guaranty, life and health, managed care, mortgage guaranty, multiline, property and casualty, and title insurance. The major number of observations are available for property and casualty, life and health, and multiline insurers. The focus of the analysis is corporate profitability. In the baseline model, profitability is assessed from the return-on-assets ( ROA ), i.e. the ratio of net income to total assets. For robustness, two other measures of profitability are tested: The return-on-equity ( ROE ) is the ratio of net income to total book value equity, while the return-on-capital ( ROC ) is the ratio of net income to total capital employed. According to WH1 and WH2, insurance profits depend from underwriting and investment operations, while ESG ratings moderate this effect. The variable UNDERWR is the log of net premiums earned. Robustness tests will employ also the log of premiums written ( NETWR ), and the ratio of net premiums written to policyholder surplus ( NETWRSURPL ). Policyholder surplus is total assets minus total liabilities. Both quan- tities UNDERWR and NETWR increase with the underwriting activities. NETWRSURPL is the so-called “surplus ratio”, and is inversely related to the insurer’s capacity. A high value of NETWRSURPL indicates that premiums grow without a corresponding increase in surplus, constraining the capacity to write new policies. Investment is measured with the ratio of total investments to total assets ( INV ). The investment components are mainly debt and equity securi- ties. Therefore, the ratio of total investment in debt securities to assets is called DEBTINV ASS , while the ratio of total investment in equity securities to assets is called EQUITY INV ASS . To identify the respective shares in the investment portfolio, DEBTINV and EQUITY INV calcu- late the ratio, respectively, of debt and equity investments to total investments. The ESG rating of the firm ( ESG ) is a scale 0-100, where the higher score points to better environmental, social, and governance dimensions. The regression models control for firm-specific characteristics, i.e. the firm size measured with the log of total assets ( SIZE ), and the financial leverage approximated with the ratio of book value debt to book value equity ( DEBTEQ ). All these definitions are summarized in Table 2. After winsorizing the variables at the 1st and 99th percentiles, descriptive statistics are calculated and presented in Table 3. Consistent with the common intuition, the in- vestment portfolios of the insurers in the sample are predominantly composed of debt instruments. In fact, DEBTINV is on average 71%, compared to the average 10% of EQUITY INV . This reflects the business model of insurance companies, which have a propensity to invest in longer- term fixed-income securities (mainly corporate and government bonds) offering a considerably more predictable future cashflow compared to stock market investments. Long-duration and low-risk in- vestments are used to pay-off claims that are expected far in the future. Nevertheless, insurers often participate in the stock market to achieve better diversification and enhance returns. However, as firms must ensure they do not incur unsustainable losses in the short term, stocks typically account for a limited part of their investment portfolios. Table 4 reports pair-wise correlation. As expected, ROA is positively correlated with UNDERW and INV . To verify this association conditionally and determine whether ESG ratings have a moderating role, a regression analysis will be performed. The estimation period is 2013–2024. See Table 2 for the definitions of the variables. 3.2 Regression models To test the working hypotheses WH1 and WH2, the following panel regression for the prof- itability of insurer’s j in year t is specified: Profitability j,t = α + β UNDERWR j,t + γ INV j,t + ρ ( UNDERWR j,t × ESG j,t ) + σ ( INV j,t × ESG j,t ) + δControls j,t + Time effects + Region effects + ϵ j,t . (1) In the baseline model, the return-on-assets ( ROA ) measures profitability. The controls include SIZE and DEBTEQ . Time and region fixed effects capture characteristics that are invariant over time and geographic regions (Africa, Asia-Pacific, Europe, Latin America and the Caribbean, Middle East, United States and Canada), while α and ϵ represent, respectively, a constant and an error term. The working hypothesis WH1 predicts that the coefficient ρ of the interaction between UNDERWR and ESG is positive on ROA . Instead, the working hypothesis WH2 predicts that the coefficient σ on the interaction between INV and ESG is negative. To test the working hypotheses WH3, the shares of debt and equity investments to total invest- ments (respectively DEBTINV and EQUITY INV ) are regressed on the insurer’s ESG rating: DEBTINV j,t = η + κESG j,t + ν Controls j,t + Time effects + Region effects + ω j,t . (2) EQUITY INV j,t = ψ + ζ ESG j,t + τ Controls j,t + Time effects + Region effects + µ j,t . (3) In the two equations (2) and (3) the control variables are SIZE , UNDERWR , and DEBTEQ . Time and region fixed effects, along with a constant and an error term, are included. The hypothesis WH3 predicts that κ should be positive, while ζ should be negative. This means that high ESG insurers invest more in debt securities, while they reduce the exposure of the portfolio to equity securities. 4 https://www.spglobal.com/market-intelligence/en/solutions/products/sp-capital-iq-pro. 4 Results The results in Table 5 (column 1) are consistent with hypotheses WH1 and WH2. That is, ESG ratings influence how insurer profitability depends on underwriting and investments. More precisely, the moderating role of ESG has opposite directions: While ESG ratings strengthen the relationship between profits and underwriting, they weaken the relationship with investments. To verify more carefully the interaction of ESG with investment, columns 2-3 of Table 5 test separately equity investments and debt investments, taken as ratios to total assets. Both variables EQUITY INV ASS and DEBTINV ASS have a positive coefficient, but their interaction with ESG is negative. This means that profits increase with investments, but this effect is weaker for high ESG insurers. 5 Overall, the findings are consistent with previous evidence showing that ESG improves insurance profits (Brogi and Lagasio, 2019; Brogi et al., 2022; Bressan, 2023b). 6 However, the approach followed in this analysis of disentangling the contribution from underwriting and investment on profits reveals that ESG amplifies the positive impact of underwriting. To stress the robustness of the baseline results, in Table 6 a few changes to the model in (1) are made. First, to verify whether the outcomes vary across types of insurance, in column 1 the interaction with ESG is further interacted with an indicator for the insurance segment. The signs are homogeneous over segments, and differences in magnitude are not extremely striking. Second, in alternative to UNDERWR , the insurer’s underwriting is measured employing NETWR (column 2) and NETWR SURPL (column 3). The two quantities are available only for a few firms; therefore, the sample for the two regressions is smaller. As both variables have a positive sign, the results are in line with previous results, confirming the hypothesis that high ESG insurers underwriting high premiums are also more profitable (WH1). Notice that, using these alternative measures for underwriting, the effect of investment on ROA does not vary respect to the baseline model. Finally, columns 4 and 5 run regressions for alternative measures of profitability, i.e. the return-on-equity ( ROE ) and the return-on-capital ( ROC ). The signs of the interaction terms are the same as in the baseline equation and they are all statistically significant. Overall, the evidence in Table 6 confirms that ESG has a robust moderating role in determining the profits of insurers. Tables 7 shows effects from ESG ratings on the insurers’ investment portfolio composition. Column 1 estimates the model in (2) controlling for firm size. Column 2 estimates the model in (2) with the entire set of controls, implying a small reduction in the number of observations due the lack of data available for all regressors. In both columns, the sign of ESG confirms the validity of hypothesis WH3, revealing that insurers with a strong ESG performance increase their shares of debt investments in the portfolios. For robustness, in column 3 debt investments are normalized by total assets: The sign of ESG remains positive, although not statistically significant. Columns 4 to 6 perform regressions on equity investments following equation (3). The coefficient of ESG is always negative and statistically significant, as predicted by hypothesis WH3. To verify this outcome more carefully, in Table 8 the sample is divided into low/high ESG firms. For every year in the sample, low ESG firms have ESG below the sample median. Instead, high ESG firms have ESG above or equal to the sample median. Then, two separate regressions of ROA are run for the two subsamples. The aim is to verify whether the association between earned premiums and investment composition varies with the ESG performance. Interestingly, for high ESG insurers the increasing premiums lead to a significantly larger share of debt investments, while equity investments do not change considerably. In contrast, the pattern is opposite for low ESG firms, in which premiums correlate negatively with debt investments while positively with equity investments, thereby making their portfolios likely exposed to equity market risks. Namely, the findings suggest that ESG characteristics influence in a considerable way their business models. 5 For all the tables, the results would be similar testing separately the environmental, social, and governance ratings. By conducting separate regressions, it was verified that the coefficients had similar magnitude and statistical significance. These results are not reported in the paper, but are available on request. 6 As mentioned, the literature about ESG and corporate profitability has focused more largely on non-financial firms. For example, evidence that ESG leads to higher corporate profits includes Kim and Li (2021) and D’Amato et al. (2024). However, financial firms, such as banks and insurers, are hardly comparable to non-financial industries. Therefore, studying the effect of corporate social responsibility and ESG on profits requires accounting for business- specific aspects (Soana et al., 2011; Kalyani and Mondal, 2024). This paper investigates in more detail to what extent ESG is factored into the determinants of insurance profits. 5 Conclusion Analyzing insurers worldwide from 2013 until 2024, the article shows that ESG moderates the effect of underwriting and investment on insurers’ profits. More precisely, when ESG scores increase, profits are more strongly associated with underwriting premiums, while depend less on investments. The interpretation is that ESG improves insurance claims management, reducing the uncertainty about future liabilities. Consequently, high ESG insurers can earn high margins from their underwriting, investing premiums in more stable (while less rewarding) investment securities. These findings are relevant especially for insurance executives. In fact, as they strive to foster the sustainability of the business (Eling, 2024), insurance managers should take into account more carefully that strong ESG dimensions would affect profits on different sides. However, also from a supervisory perspective it becomes interesting to learn the dynamics of insurance profits, because a sound and well-performing insurance sector is crucial to preserve stability at the systemic level (European Central Bank, 2009; International Association of Insurance Supervisors, 2011; French et al., 2015). This article entails few limitations that could be extended by future research. First, the anal- ysis used variables in the data source that had a sufficient number of observations across firms and countries. For example, it was not possible to find sufficient data on reinsurance purchases or expense ratios, which both would likely impact insurers’ profits. Moreover, the insights from this study have to discount the lack of a unified framework across regions for the disclosure and assessment of non-financial information and ESG characteristics. The recent regulatory develop- ments worldwide drive from existing voluntary disclosures of climate-related risks to mandatory requirements that potentially carry increased legal liability. 7 Regulations aimed at establishing a comprehensive framework for ESG measurement would improve the transparency and comparabil- ity of ESG scoring across geographies and providers. For example, it would be interesting to test the findings of this analysis using the ESG ratings obtained from alternative data providers. In addition, concerning insurers’ investments, access to more granular datasets could offer deeper insights into how ESG affects portfolio composition, in terms of issuer, maturity, or level of risk. Future research could also develop a theoretical model that explains the insurer’s portfolio allocation based on its ESG performance. This would provide a more robust theoretical foundation to the seminal empirical results of this paper. 7 The legal frameworks remain still heterogeneous worldwide. For example, in the EU the Corporate Sustainability Reporting Directive (CSRD) addresses non-financial reporting and sustainability reporting that applies to all com- panies of a certain size (see https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/c ompany-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en#legislation. In the US, the Securities and Exchange Commission (SEC) released its climate disclosure requirements proposal in March 2024 (see https://www.sec.gov/newsroom/press-releases/2024-31). Declarations Disclosure: The authors declare no conflict of interest. Authors’ individual contribution: Conceptualization — S.B.; Methodology — S.B. and S. D.; Formal Analysis — S.B. and S. D.; Writing — Original Draft — S.B. and S. D.; Writing — Review & Editing — S.B. and S. D.; Supervision — S.B. and S.D.; Funding Acquisition — S.B. References Bressan, Silvia , “Effects from ESG scores on P&C insurance companies,” Sustainability , 2023, 15 (16), 12644. , “Reinsurance and sustainability: Evidence from international insurers,” Journal of Applied Finance & Banking , 2023, 13 , 153–184. and Sabrina Du , “Greenhouse gas emissions in the United States and the market value of insurance companies,” Risk Governance and Control: Financial Markets & Institutions , forth- coming. Brogi, Marina and Valentina Lagasio , “Environmental, social, and governance and company profitability: Are financial intermediaries different?,” Corporate Social Responsibility and Envi- ronmental Management , 2019, 26 (3), 576–587. , Antonella Cappiello, Valentina Lagasio, and Fabrizio Santoboni , “Determinants of insurance companies’ environmental, social, and governance awareness,” Corporate Social Re- sponsibility and Environmental Management , 2022, 29 (5), 1357–1369. Carannante, Maria, Valeria D’amato, and Maria Sole Staffa , “How ESG corporate reputa- tion affects sustainability premiums in the insurance industry,” Frontiers in Applied Mathematics and Statistics , 2024, 10 , 1474565. Chiaramonte, Laura, Alberto Dreassi, Andrea Paltrinieri, and Stefano Piser`a , “Sus- tainability practices and stability in the insurance industry,” Sustainability , 2020, 12 (14), 5530. D’Amato, Valeria, Rita D’Ecclesia, and Susanna Levantesi , “Firms’ profitability and ESG score: A machine learning approach,” Applied Stochastic Models in Business and Industry , 2024, 40 (2), 243–261. Eling, Martin , “Is the insurance industry sustainable?,” The Journal of Risk Finance , 2024, 25 684–703. European Central Bank , “The importance of insurance companies for financial stability,” ht tp s: // ww w. ec b. eu ro pa .e u/ pu b/ pd f/ fs r/ ar t/ec b. fsra rt20 09 12 en _0 5. pd f , 2009. French, Andrea, Mathieu Vital, and Dean Minot , “Insurance and financial stability,” Bank of England Quarterly Bulletin (Q3) , 2015. Garavito, Fabian, Ulf Lewrick, Tomas Stastny, and Karamfil Todorov , “Shifting land- scapes: Life insurance and financial stability,” BIS Quarterly Review , 2024, p. 21. Ge, Shan and Michael S Weisbach , “The role of financial conditions in portfolio choices: The case of insurers,” Journal of Financial Economics , 2021, 142 (2), 803–830. Gupta, Aparna, Abena Owusu, and Jue Wang , “Assessing US insurance firms’ climate change impact and response,” The Geneva Papers on Risk and Insurance-Issues and Practice , 2023, pp. 1–34. Hue, B, A Jinks, J Spain, M Bora, and S Siew , “Investment risk for long-term investors: risk measurement approaches: Considerations for pension funds and insurers,” British Actuarial Journal , 2019, 24 , e16. International Association of Insurance Supervisors , “Insurance and financial stability,” ht tp s: // ww w. ia is .o rg /u pl oa ds /2 02 2/ 01 /I ns ur an ce _a nd _f in an ci al _s ta bi li ty .p df .p df , 2011. Kalyani, Sushil and Rima Mondal , “Is ESG disclosure creating value propositions for the firms? An SLR and meta-analysis of how ESG affects the financials of a firm,” Corporate Ownership & Control , 2024, 21 (1), 96–117. Khovrak, Inna , “ESG-driven approach to managing insurance companies’ sustainable develop- ment,” Insurance Markets and Companies , 2020, 11 (1), 42–52. Kim, Sang and Zhichuan Li , “Understanding the impact of ESG practices in corporate finance,” Sustainability , 2021, 13 (7), 3746. Knox, Benjamin and Jakob Ahm Sørensen , “Insurers’ investments and insurance prices,” Available at SSRN 4394474 , 2024. Koˇcovi´c, Jelena, Tatjana Rakonjac-Anti´c, and Marija Jovovi´c , “The impact of the global financial crisis on the structure of investment portfolios of insurance companies,” Economic Annals , 2011, 56 (191), 143–161. Liu, Chi Sang and Hailiang Yang , “Optimal investment for an insurer to minimize its proba- bility of ruin,” North American Actuarial Journal , 2004, 8 (2), 11–31. Montero, Jos´e-Mar´ıa, Viviane Naimy, Nermeen Abi Farraj, and Rim El Khoury , “Nat- ural disasters, stock price volatility in the property-liability insurance market and sustainability: An unexplored link,” Socio-Economic Planning Sciences , 2024, 91 , 101791. Rousov´a, Linda Fache and Margherita Giuzio , “Insurers’ investment strategies: Pro-or coun- tercyclical?,” ECB Working Paper Series No 2299 , 2019. Soana, Maria-Gaia et al. , “Corporate social responsibility and financial performance: Evidence from the financial sector,” Corporate Ownership & Control , 2011, 8 (2), 27. Tommaso, Caterina Di and Maria Mazzuca , “The stock price of European insurance compa- nies: What is the role of ESG factors?,” Finance Research Letters , 2023, 56 , 104071. Tables Tables 1 to 8 are available in the Supplementary Files section Additional Declarations The authors declare no competing interests. Supplementary Files Tables.docx Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6534211","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":448335718,"identity":"dc6f4a19-d109-4ef0-a075-36a497fe1b8c","order_by":0,"name":"Silvia Bressan","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA90lEQVRIiWNgGAWjYDACZuYGhgQGEAIDG6AID5A2wKeFEUVLGkwLPj1ALQwILYeBGKQFjzXy7YxtEg9qGPLM29sff/i543zidnbewx8YCv7g1GJwGKgl4RhDscyZM2aSvWduJ+5s5kswwOcwA2bGZoMENobEGRI5bAy8bbcTNxzmMUjAp0W+GaTlH1CL/PPHH/+2nQNrOYDX+4cZGx8ktoFsYTCQ5m07ANJi2IDXYWAtfRLFEjw5ZtKybcnGGw7zJTMkGBjjdlj/4QMHf3yzyZNgP/7449s2O9kN588e/vDhjxxuh0GABBo/gZCGUTAKRsEoGAV4AQDT81GPTIQdhwAAAABJRU5ErkJggg==","orcid":"https://orcid.org/0000-0002-4918-001X","institution":"Free University of Bozen","correspondingAuthor":true,"prefix":"","firstName":"Silvia","middleName":"","lastName":"Bressan","suffix":""},{"id":448335804,"identity":"9e55a84e-6e29-4396-a2f3-615a612b0bbe","order_by":1,"name":"Sabrina Du","email":"","orcid":"","institution":"The Donald J. Schneider School of Business and Economics","correspondingAuthor":false,"prefix":"","firstName":"Sabrina","middleName":"","lastName":"Du","suffix":""}],"badges":[],"createdAt":"2025-04-26 09:54:56","currentVersionCode":1,"declarations":{"humanSubjects":false,"vertebrateSubjects":false,"conflictsOfInterestStatement":false,"humanSubjectEthicalGuidelines":false,"humanSubjectConsent":false,"humanSubjectClinicalTrial":false,"humanSubjectCaseReport":false,"vertebrateSubjectEthicalGuidelines":false},"doi":"10.21203/rs.3.rs-6534211/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6534211/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":81616072,"identity":"5f5f646b-d723-4929-af46-aef2cc0b30a4","added_by":"auto","created_at":"2025-04-29 08:18:17","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":855103,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6534211/v1/9017a55e-0bdd-4ef5-bfc0-fe6a6ffcee42.pdf"},{"id":81615001,"identity":"561cd663-1661-47db-aaa7-555e0e9b4ee1","added_by":"auto","created_at":"2025-04-29 08:02:11","extension":"docx","order_by":1,"title":"","display":"","copyAsset":false,"role":"supplement","size":92318,"visible":true,"origin":"","legend":"","description":"","filename":"Tables.docx","url":"https://assets-eu.researchsquare.com/files/rs-6534211/v1/f7370ee397d48e4503311653.docx"}],"financialInterests":"The authors declare no competing interests.","formattedTitle":"\u003cp\u003eEvidence for the moderating role of ESG on the profitability of insurance companies\u003c/p\u003e","fulltext":[{"header":"1 Introduction","content":"\u003cp\u003eThe insurance business is fundamentally about mutualizing and managing risks, which are closely tied to environmental, social, and governance (ESG) criteria. Insurers have long recognized that a robust governance structure and understanding the consequences of climate change and environmental disasters can benefit multiple aspects of their business and protect the company’s value. Recent literature shows that insurers with high ESG ratings are financially more stable (Chiaramonte et al., 2020; Bressan, 2023a), and have a higher market valuation (Di Tommaso and Mazzuca, 2023; Bressan, 2023a). Nevertheless, it remains uncovered by the literature whether the ESG characteristics of insurers influence profits.\u003c/p\u003e\n\u003cp\u003eThis paper contributes by bringing new knowledge on this topic. The next section will develop working hypotheses aimed at establishing whether ESG has a moderating role in determining the two main sources of insurers’ profitability, namely underwriting and investments. The main findings are that strong ESG characteristics enhance the dependence of profits on premiums, while profits are less related to investments when ESG ratings are high. The interpretation is that robust ESG criteria improve the claim management of insurers, leading to more stable and predictable liabilities in the future, which they match with a less aggressive (while also less rewarding) investment. Moreover, additional results 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.\u003c/p\u003e\n\u003cp\u003eThis evidence is important for academics and insurance managers. The findings support previ- ous literature showing the positive effect of ESG on insurance profits (Brogi et al., 2022; Bressan, 2023b), while also proving that such an effect would be better understood by considering in more detail the different sources of profitability. In particular, this study is the first research showing that insurers’ ESG ratings are significantly associated with the asset composition. This is especially important for executives, who could better understand the way in which incorporating ESG values in the business would ultimately reflect on profits. Finally, the dynamics outlined in the paper are interesting for supervisors too, because a financially healthy insurance sector has a pivotal role in the well-functioning of the economic environment.\u003c/p\u003e\n\u003cp\u003eThe article is organized as follows. Section 2 reviews the literature and develops the working hypotheses. Section 3 outlines the data and the regression models. Section 4 describes the results. Section 5 concludes.\u003c/p\u003e"},{"header":"2 Literature review and working hypotheses","content":"\u003cp\u003eThe literature on corporate ESG has largely focused on non-financial firms. However, a recent strand of research has also examined the ESG performance of insurance companies, exploring the association with aspects such as financial stability (Chiaramonte et al., 2020; Bressan, 2023a) and stock market valuations (Di Tommaso and Mazzuca, 2023; Bressan, 2023a). Brogi et al. (2022) build a scoring model for the ESG awareness of the insurance company, showing that firms with the highest level of ESG awareness are larger, more profitable, and solvent. From a variety of insurer- specific indicators, Brogi and Lagasio (2019) construct an ESG index that is found to be positively associated with profitability. Khovrak (2020) outlines an ESG-driven approach to manage a more sustainable development of insurance companies. Finally, Bressan (2023b) shows that the purchase of reinsurance decreases in the company\u0026rsquo;s ESG score, thereby making the firm more profitable.\u003csup\u003e1\u003c/sup\u003e\u003c/p\u003e\n\u003cp\u003eHowever, previous literature has primarily considered the direct impact of ESG on the financial dimensions of insurers. Building upon this knowledge, the following discussion focuses on the moderating role of ESG in determining the profits of insurance companies. The objective is to build testable hypotheses that explain how ESG can influence the dynamics that drive insurers\u0026rsquo; profitability.\u003c/p\u003e\n\u003cp\u003eIn fact, the main source of profit for insurance companies is the sale of insurance products, but they also generate revenue by investing premium income that is not being paid out to customers to cover losses. The following two hypotheses establish how insurers\u0026rsquo; ESG ratings influence the way in which profits depend on underwriting and investments. The evidence in Bressan (2023a) shows that high ESG insurers are financially stable and underwrite more policies. Similarly, Chiaramonte et al. (2020) report that default risk decreases for insurers that have high ESG ratings. The recent study conducted by the insurance broker Howden (2022) found that high ESG insurers experienced\u003c/p\u003e\n\n\n\u003cp\u003elow losses, improving their underwriting performance.\u003csup\u003e2\u003c/sup\u003e Moreover, ESG facilitates easier access to capital markets, as the continued growth of green and sustainable funds compels insurers to enhance their ESG ratings to maintain full access to capital.\u003csup\u003e3\u003c/sup\u003e Carannante et al. (2024) develop a model suggesting that increasing engagement in ESG activities leads to an improvement in the insurance company\u0026rsquo;s reputation, to the extent that policyholders are willing to pay extra for the insurer\u0026rsquo;s commitment to ESG. Therefore, a strong ESG performance will likely allow the insurer to process insurance claims more efficiently, which is crucial for companies in the event of a loss. The positive effect of ESG on claim management brings the expectation that a well-performing ESG insurer would earn a high income from its underwriting operations, ultimately increasing profits. In other words, working hypothesis 1 (WH1) states that ESG moderates the positive effect of underwriting on profits:\u003c/p\u003e\n\u003cp\u003eWH1: The positive effect of underwriting on profits is stronger for high ESG insurers.\u003c/p\u003e\n\n\u003cp\u003eThe literature has not covered the relationship between ESG performance and insurers\u0026rsquo; in- vestments. Previous articles have examined other important characteristics of investments made by insurance companies. These include, for example, time-variation of investments related to the economic cycle (Fache Rousov\u0026acute;a and Giuzio, 2019), the measurement of investment risk (Hue et al., 2019), and how financial constraints can shape investment (Ge and Weisbach, 2021). Some papers primarily focus on fixed income investments (Knox and S\u0026oslash;rensen, 2024), while other articles discuss equity-type investments (Garavito et al., 2024), or examine the portfolio composition of both asset classes (Liu and Yang, 2004). However, the literature does not address whether insur- ers\u0026rsquo; investments account for the company ESG performance. As insurers invest premiums received from customers, they generally choose assets with features aligned with the characteristics of the insurance products they sell. This means that the risks from insurance liabilities should balance with the risks undertaken through investment activities. Put differently, insurers should invest the available funds in line with statistical expectations of loss in the future (Koˇcovi\u0026acute;c et al., 2011). If a high ESG insurer has better claim management, the firm is likely to face less volatile cash flows in the future, being capable of anticipating and managing future losses. This implies that the firm\u003c/p\u003e\n\u003cp\u003ewould be less inclined to invest in highly volatile (and highly rewarding) securities. In contrast, low ESG firms would be willing to select investment securities with a risk-reward profile that tracks more uncertain cash flows in the future. As a result, the profits of low ESG firms reflect investment earnings in a larger share compared to high ESG firms. That is, working hypothesis 2 (WH2) states that ESG weakens the effect of investments on profits:\u003c/p\u003e\n\u003cp\u003eWH2: The positive effect of insurers\u0026rsquo; investments on profits is lower for high ESG insurers.\u003c/p\u003e\n\u003cp\u003eFinally, the third working hypothesis relates ESG to the investment portfolio composition, which consists of debt and equity securities. Based on the previous arguments, the hypothesis is that low ESG insurers would exhibit a higher propensity to invest in equity securities, which offer high returns but also expose them to significant market risks. In contrast, high ESG firms rely on predictable and stable cash flows over time, leading firms to invest their premiums in more stable debt instruments. Therefore, working hypothesis 3 (WH3) states the following:\u003c/p\u003e\n\u003cp\u003eWH3: High ESG insurers invest larger shares of their investment portfolios in debt securities, while lower shares in equity securities.\u003c/p\u003e\n\u003cp\u003e\u003csup\u003e1\u003c/sup\u003eA few articles in the recent literature have focused on environmental aspects, for example addressing the question whether financial dimensions of insurers are affected by greenhouse gas emissions (Bressan and Du, forthcoming) and natural disasters (Gupta et al., 2023; Montero et al., 2024).\u003c/p\u003e\n\u003cp\u003e\u003csup\u003e2\u003c/sup\u003ehttps://www.howdengroup.com/news-and-insights/higher-esg-ratings-lead-to-improved-underwritin\u003c/p\u003e\n\u003cp\u003eg-performance.\u003c/p\u003e\n\u003cp\u003e\u003csup\u003e3\u003c/sup\u003ehttps://www.ey.com/en_jo/insights/insurance/esg-and-access-to-capital-why-insurers-must-stay-f\u003c/p\u003e\n\u003cp\u003eocused-on-ratings.\u003c/p\u003e"},{"header":"3 Methodology","content":"\u003ch2\u003e3.1 Sample and variables\u003c/h2\u003e\n\u003cp\u003eThe study employs a panel data set covering insurance companies worldwide during the period 2013 to 2024. The firms are all publicly listed and are in operation during the study period. Balance sheet data and ESG ratings are sourced from S\u0026amp;P Global.\u003csup\u003e4\u003c/sup\u003e Table 1 displays the composition of the sample across insurance segments, i.e. financial guaranty, life and health, managed care, mortgage guaranty, multiline, property and casualty, and title insurance. The major number of observations are available for property and casualty, life and health, and multiline insurers.\u003c/p\u003e\n\u003cp\u003eThe focus of the analysis is corporate profitability. In the baseline model, profitability is assessed from the return-on-assets (\u003cem\u003eROA\u003c/em\u003e), i.e. the ratio of net income to total assets. For robustness, two other measures of profitability are tested: The return-on-equity (\u003cem\u003eROE\u003c/em\u003e) is the ratio of net income to total book value equity, while the return-on-capital (\u003cem\u003eROC\u003c/em\u003e) is the ratio of net income to total\u003c/p\u003e\n\u003cp\u003ecapital employed. According to WH1 and WH2, insurance profits depend from underwriting and investment operations, while ESG ratings moderate this effect.\u003c/p\u003e\n\u003cp\u003eThe variable \u003cem\u003eUNDERWR\u003c/em\u003eis the log of net premiums earned. Robustness tests will employ also the log of premiums written (\u003cem\u003eNETWR\u003c/em\u003e), and the ratio of net premiums written to policyholder surplus (\u003cem\u003eNETWRSURPL\u003c/em\u003e). Policyholder surplus is total assets minus total liabilities. Both quan- tities \u003cem\u003eUNDERWR\u003c/em\u003eand \u003cem\u003eNETWR\u003c/em\u003eincrease with the underwriting activities. \u003cem\u003eNETWRSURPL \u003c/em\u003eis the so-called “surplus ratio”, and is inversely related to the insurer’s capacity. A high value of \u003cem\u003eNETWRSURPL \u003c/em\u003eindicates that premiums grow without a corresponding increase in surplus, constraining the capacity to write new policies. Investment is measured with the ratio of total investments to total assets (\u003cem\u003eINV\u003c/em\u003e). The investment components are mainly debt and equity securi- ties. Therefore, the ratio of total investment in debt securities to assets is called \u003cem\u003eDEBTINV\u003c/em\u003e\u003cem\u003eASS\u003c/em\u003e, while the ratio of total investment in equity securities to assets is called \u003cem\u003eEQUITY\u003c/em\u003e\u003cem\u003eINV \u003c/em\u003e\u003cem\u003eASS\u003c/em\u003e. To identify the respective shares in the investment portfolio, \u003cem\u003eDEBTINV \u003c/em\u003eand \u003cem\u003eEQUITY\u003c/em\u003e\u003cem\u003eINV\u003c/em\u003ecalcu- late the ratio, respectively, of debt and equity investments to total investments. The ESG rating of the firm (\u003cem\u003eESG\u003c/em\u003e) is a scale 0-100, where the higher score points to better environmental, social, and governance dimensions. The regression models control for firm-specific characteristics, i.e. the firm size measured with the log of total assets (\u003cem\u003eSIZE\u003c/em\u003e), and the financial leverage approximated with the ratio of book value debt to book value equity (\u003cem\u003eDEBTEQ\u003c/em\u003e). All these definitions are summarized in Table 2. After winsorizing the variables at the 1st and 99th percentiles, descriptive statistics are calculated and presented in Table 3. Consistent with the common intuition, the in- vestment portfolios of the insurers in the sample are predominantly composed of debt instruments. In fact, \u003cem\u003eDEBTINV\u003c/em\u003eis on average 71%, compared to the average 10% of \u003cem\u003eEQUITY\u003c/em\u003e\u003cem\u003eINV\u003c/em\u003e. This reflects the business model of insurance companies, which have a propensity to invest in longer- term fixed-income securities (mainly corporate and government bonds) offering a considerably more predictable future cashflow compared to stock market investments. Long-duration and low-risk in- vestments are used to pay-off claims that are expected far in the future. Nevertheless, insurers often participate in the stock market to achieve better diversification and enhance returns. However, as firms must ensure they do not incur unsustainable losses in the short term, stocks typically account for a limited part of their investment portfolios. Table 4 reports pair-wise correlation. As expected,\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eROA \u003c/em\u003eis positively correlated with \u003cem\u003eUNDERW\u003c/em\u003eand \u003cem\u003eINV\u003c/em\u003e. To verify this association conditionally and determine whether ESG ratings have a moderating role, a regression analysis will be performed.\u003c/p\u003e\n\u003cp\u003eThe estimation period is 2013–2024. See Table 2 for the definitions of the variables.\u003c/p\u003e\n\u003ch2\u003e3.2 Regression models\u003c/h2\u003e\n\u003cp\u003eTo test the working hypotheses WH1 and WH2, the following panel regression for the prof- itability of insurer’s \u003cem\u003ej \u003c/em\u003ein year \u003cem\u003et \u003c/em\u003eis specified:\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eProfitability\u003c/em\u003e\u003cem\u003ej,t \u003c/em\u003e= \u003cem\u003eα\u003c/em\u003e+ \u003cem\u003eβ\u003c/em\u003e\u003cem\u003eUNDERWR\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e+ \u003cem\u003eγ\u003c/em\u003e\u003cem\u003eINV\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e+ \u003cem\u003eρ\u003c/em\u003e(\u003cem\u003eUNDERWR\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e\u003cem\u003e× \u003c/em\u003e\u003cem\u003eESG\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e)\u003c/p\u003e\n\u003cp\u003e+\u003cem\u003eσ\u003c/em\u003e(\u003cem\u003eINV\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e\u003cem\u003e× \u003c/em\u003e\u003cem\u003eESG\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e) + \u003cem\u003eδControls\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e+ \u003cem\u003eTime effects \u003c/em\u003e+ \u003cem\u003eRegion effects \u003c/em\u003e+ \u003cem\u003eϵ\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e\u003cem\u003e.\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e(1)\u003c/p\u003e\n\u003cp\u003eIn the baseline model, the return-on-assets (\u003cem\u003eROA\u003c/em\u003e) measures profitability. The controls include \u003cem\u003eSIZE \u003c/em\u003eand \u003cem\u003eDEBTEQ\u003c/em\u003e. Time and region fixed effects capture characteristics that are invariant over time and geographic regions (Africa, Asia-Pacific, Europe, Latin America and the Caribbean, Middle East, United States and Canada), while \u003cem\u003eα \u003c/em\u003eand \u003cem\u003eϵ \u003c/em\u003erepresent, respectively, a constant and an error term. The working hypothesis WH1 predicts that the coefficient \u003cem\u003eρ \u003c/em\u003eof the interaction between \u003cem\u003eUNDERWR \u003c/em\u003eand \u003cem\u003eESG \u003c/em\u003eis positive on \u003cem\u003eROA\u003c/em\u003e. Instead, the working hypothesis WH2 predicts that the coefficient \u003cem\u003eσ \u003c/em\u003eon the interaction between \u003cem\u003eINV\u003c/em\u003eand \u003cem\u003eESG \u003c/em\u003eis negative.\u003c/p\u003e\n\u003cp\u003eTo test the working hypotheses WH3, the shares of debt and equity investments to total invest- ments (respectively \u003cem\u003eDEBTINV\u003c/em\u003eand \u003cem\u003eEQUITY\u003c/em\u003e\u003cem\u003e INV \u003c/em\u003e) are regressed on the insurer’s ESG rating:\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eDEBTINV\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e= \u003cem\u003eη \u003c/em\u003e+ \u003cem\u003eκESG\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e+ \u003cem\u003eν Controls\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e+ \u003cem\u003eTime effects \u003c/em\u003e+ \u003cem\u003eRegion effects \u003c/em\u003e+ \u003cem\u003eω\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e\u003cem\u003e.\u003c/em\u003e(2)\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eEQUITY\u003c/em\u003e\u003cem\u003eINV\u003c/em\u003e\u003cem\u003ej,t \u003c/em\u003e= \u003cem\u003eψ \u003c/em\u003e+ \u003cem\u003eζ ESG\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e+ \u003cem\u003eτ Controls\u003c/em\u003e\u003cem\u003e\u003csub\u003ej,t\u003c/sub\u003e\u003c/em\u003e+ \u003cem\u003eTime effects \u003c/em\u003e+ \u003cem\u003eRegion effects \u003c/em\u003e+ \u003cem\u003eµ\u003c/em\u003e\u003cem\u003ej,t\u003c/em\u003e\u003cem\u003e.\u003c/em\u003e(3)\u003c/p\u003e\n\u003cp\u003eIn the two equations (2) and (3) the control variables are \u003cem\u003eSIZE\u003c/em\u003e, \u003cem\u003eUNDERWR\u003c/em\u003e, and \u003cem\u003eDEBTEQ\u003c/em\u003e. Time and region fixed effects, along with a constant and an error term, are included. The hypothesis WH3 predicts that \u003cem\u003eκ \u003c/em\u003eshould be positive, while \u003cem\u003eζ \u003c/em\u003eshould be negative. This means that high ESG insurers invest more in debt securities, while they reduce the exposure of the portfolio to equity securities.\u003c/p\u003e\n\u003cp\u003e\u003csup\u003e4\u003c/sup\u003ehttps://www.spglobal.com/market-intelligence/en/solutions/products/sp-capital-iq-pro.\u003c/p\u003e"},{"header":"4 Results","content":"\u003cp\u003eThe results in Table 5 (column 1) are consistent with hypotheses WH1 and WH2. That is, ESG ratings influence how insurer profitability depends on underwriting and investments. More precisely, the moderating role of \u003cem\u003eESG \u003c/em\u003ehas opposite directions: While ESG ratings strengthen the relationship between profits and underwriting, they weaken the relationship with investments. To verify more carefully the interaction of \u003cem\u003eESG \u003c/em\u003ewith investment, columns 2-3 of Table 5 test separately equity investments and debt investments, taken as ratios to total assets. Both variables \u003cem\u003eEQUITY\u003c/em\u003e\u003cem\u003eINV\u003c/em\u003e\u003cem\u003eASS \u003c/em\u003eand \u003cem\u003eDEBTINV\u003c/em\u003e\u003cem\u003eASS \u003c/em\u003ehave a positive coefficient, but their interaction with \u003cem\u003eESG \u003c/em\u003eis negative. This means that profits increase with investments, but this effect is weaker for high ESG insurers.\u003csup\u003e5\u003c/sup\u003e Overall, the findings are consistent with previous evidence showing that ESG improves insurance profits (Brogi and Lagasio, 2019; Brogi et al., 2022; Bressan, 2023b).\u003csup\u003e6\u003c/sup\u003e However, the approach followed in this analysis of disentangling the contribution from underwriting and investment on profits reveals that ESG amplifies the positive impact of underwriting.\u003c/p\u003e\n\u003cp\u003eTo stress the robustness of the baseline results, in Table 6 a few changes to the model in (1) are made. First, to verify whether the outcomes vary across types of insurance, in column 1 the\u003c/p\u003e\n\u003cp\u003einteraction with \u003cem\u003eESG \u003c/em\u003eis further interacted with an indicator for the insurance segment. The signs are homogeneous over segments, and differences in magnitude are not extremely striking. Second, in alternative to \u003cem\u003eUNDERWR\u003c/em\u003e, the insurer’s underwriting is measured employing \u003cem\u003eNETWR\u003c/em\u003e(column 2) and \u003cem\u003eNETWR \u003c/em\u003e\u003cem\u003eSURPL \u003c/em\u003e(column 3). The two quantities are available only for a few firms; therefore, the sample for the two regressions is smaller. As both variables have a positive sign, the results are in line with previous results, confirming the hypothesis that high ESG insurers underwriting high premiums are also more profitable (WH1). Notice that, using these alternative measures for underwriting, the effect of investment on \u003cem\u003eROA \u003c/em\u003edoes not vary respect to the baseline model. Finally, columns 4 and 5 run regressions for alternative measures of profitability, i.e. the return-on-equity (\u003cem\u003eROE\u003c/em\u003e) and the return-on-capital (\u003cem\u003eROC\u003c/em\u003e). The signs of the interaction terms are the same as in the baseline equation and they are all statistically significant. Overall, the evidence in Table 6 confirms that ESG has a robust moderating role in determining the profits of insurers.\u003c/p\u003e\n\u003cp\u003eTables 7 shows effects from ESG ratings on the insurers’ investment portfolio composition. Column 1 estimates the model in (2) controlling for firm size. Column 2 estimates the model in\u003c/p\u003e\n\u003cp\u003e(2) with the entire set of controls, implying a small reduction in the number of observations due the lack of data available for all regressors. In both columns, the sign of ESG confirms the validity of hypothesis WH3, revealing that insurers with a strong ESG performance increase their shares of debt investments in the portfolios. For robustness, in column 3 debt investments are normalized by total assets: The sign of \u003cem\u003eESG \u003c/em\u003eremains positive, although not statistically significant. Columns 4 to 6 perform regressions on equity investments following equation (3). The coefficient of \u003cem\u003eESG \u003c/em\u003eis always negative and statistically significant, as predicted by hypothesis WH3. To verify this outcome more carefully, in Table 8 the sample is divided into low/high ESG firms. For every year in the sample, low ESG firms have \u003cem\u003eESG \u003c/em\u003ebelow the sample median. Instead, high ESG firms have \u003cem\u003eESG \u003c/em\u003eabove or equal to the sample median. Then, two separate regressions of \u003cem\u003eROA \u003c/em\u003eare run for the two subsamples. The aim is to verify whether the association between earned premiums and investment composition varies with the ESG performance. Interestingly, for high ESG insurers the increasing premiums lead to a significantly larger share of debt investments, while equity investments do not change considerably. In contrast, the pattern is opposite for low ESG firms, in which premiums correlate negatively with debt investments while positively with equity investments, thereby making their portfolios likely exposed to equity market risks. Namely, the findings suggest that ESG characteristics influence in a considerable way their business models.\u003c/p\u003e\n\u003cp\u003e\u003csup\u003e5\u003c/sup\u003eFor all the tables, the results would be similar testing separately the environmental, social, and governance\u003c/p\u003e\n\u003cp\u003eratings. By conducting separate regressions, it was verified that the coefficients had similar magnitude and statistical significance. These results are not reported in the paper, but are available on request.\u003c/p\u003e\n\u003cp\u003e\u003csup\u003e6\u003c/sup\u003eAs mentioned, the literature about ESG and corporate profitability has focused more largely on non-financial firms. For example, evidence that ESG leads to higher corporate profits includes Kim and Li (2021) and D’Amato et al. (2024). However, financial firms, such as banks and insurers, are hardly comparable to non-financial industries. Therefore, studying the effect of corporate social responsibility and ESG on profits requires accounting for business- specific aspects (Soana et al., 2011; Kalyani and Mondal, 2024). This paper investigates in more detail to what extent ESG is factored into the determinants of insurance profits.\u003c/p\u003e"},{"header":"5 Conclusion","content":"\u003cp\u003eAnalyzing insurers worldwide from 2013 until 2024, the article shows that ESG moderates the effect of underwriting and investment on insurers’ profits. More precisely, when ESG scores increase, profits are more strongly associated with underwriting premiums, while depend less on investments. The interpretation is that ESG improves insurance claims management, reducing the uncertainty about future liabilities. Consequently, high ESG insurers can earn high margins from their underwriting, investing premiums in more stable (while less rewarding) investment securities. These findings are relevant especially for insurance executives. In fact, as they strive to foster the sustainability of the business (Eling, 2024), insurance managers should take into account more\u003c/p\u003e\n\u003cp\u003ecarefully that strong ESG dimensions would affect profits on different sides. However, also from a supervisory perspective it becomes interesting to learn the dynamics of insurance profits, because a sound and well-performing insurance sector is crucial to preserve stability at the systemic level (European Central Bank, 2009; International Association of Insurance Supervisors, 2011; French et al., 2015).\u003c/p\u003e\n\u003cp\u003eThis article entails few limitations that could be extended by future research. First, the anal- ysis used variables in the data source that had a sufficient number of observations across firms and countries. For example, it was not possible to find sufficient data on reinsurance purchases or expense ratios, which both would likely impact insurers’ profits. Moreover, the insights from this study have to discount the lack of a unified framework across regions for the disclosure and assessment of non-financial information and ESG characteristics. The recent regulatory develop- ments worldwide drive from existing voluntary disclosures of climate-related risks to mandatory requirements that potentially carry increased legal liability.\u003csup\u003e7\u003c/sup\u003e Regulations aimed at establishing a comprehensive framework for ESG measurement would improve the transparency and comparabil- ity of ESG scoring across geographies and providers. For example, it would be interesting to test the findings of this analysis using the ESG ratings obtained from alternative data providers.\u003c/p\u003e\n\u003cp\u003eIn addition, concerning insurers’ investments, access to more granular datasets could offer deeper insights into how ESG affects portfolio composition, in terms of issuer, maturity, or level of risk. Future research could also develop a theoretical model that explains the insurer’s portfolio allocation based on its ESG performance. This would provide a more robust theoretical foundation to the seminal empirical results of this paper.\u003c/p\u003e\n\n\u003cp\u003e\u003csup\u003e7\u003c/sup\u003eThe legal frameworks remain still heterogeneous worldwide. For example, in the EU the Corporate Sustainability Reporting Directive (CSRD) addresses non-financial reporting and sustainability reporting that applies to all com- panies of a certain size (see https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/c ompany-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en#legislation. In the US, the Securities and Exchange Commission (SEC) released its climate disclosure requirements proposal in March 2024 (see https://www.sec.gov/newsroom/press-releases/2024-31).\u003c/p\u003e"},{"header":"Declarations","content":"\u003cp\u003e\u003cstrong\u003eDisclosure:\u003c/strong\u003eThe\u0026nbsp;authors declare no conflict of interest.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eAuthors’\u0026nbsp;individual\u0026nbsp;contribution:\u0026nbsp;\u003c/strong\u003eConceptualization — S.B.; Methodology — S.B. and\u003c/p\u003e\n\u003cp\u003eS.\u0026nbsp;D.;\u0026nbsp;Formal\u0026nbsp;Analysis\u0026nbsp;—\u0026nbsp;S.B.\u0026nbsp;and\u0026nbsp;S.\u0026nbsp;D.;\u0026nbsp;Writing\u0026nbsp;—\u0026nbsp;Original\u0026nbsp;Draft\u0026nbsp;—\u0026nbsp;S.B.\u0026nbsp;and\u0026nbsp;S.\u0026nbsp;D.; Writing\u003c/p\u003e\n\u003cp\u003e— Review \u0026amp; Editing — S.B. and S. D.; Supervision — S.B. and S.D.; Funding Acquisition — S.B.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n \u003cli\u003e\u003cstrong\u003eBressan, Silvia\u003c/strong\u003e, \u0026ldquo;Effects from ESG scores on P\u0026amp;C insurance companies,\u0026rdquo; \u003cem\u003eSustainability\u003c/em\u003e, 2023, \u003cem\u003e15\u0026nbsp;\u003c/em\u003e(16), 12644. , \u0026ldquo;Reinsurance and sustainability: Evidence from international insurers,\u0026rdquo; \u003cem\u003eJournal\u003c/em\u003e\u003cem\u003eof\u003c/em\u003e\u003cem\u003eApplied Finance\u003c/em\u003e\u003cem\u003e\u0026amp;\u003c/em\u003e\u003cem\u003eBanking\u003c/em\u003e, 2023, \u003cem\u003e13\u003c/em\u003e, 153\u0026ndash;184.\u003c/li\u003e\n \u003cli\u003e\u003cimg width=\"9\" height=\"1\" src=\"data:image/png;base64,R0lGODdhDgABAHcAACH+GlNvZnR3YXJlOiBNaWNyb3NvZnQgT2ZmaWNlACwAAAAADgABAIAAAAABAgMCA4SPWAA7\" alt=\"image\"\u003e \u003cstrong\u003eand Sabrina Du\u003c/strong\u003e, \u0026ldquo;Greenhouse gas emissions in the United States and the market value of insurance companies,\u0026rdquo; \u003cem\u003eRisk\u003c/em\u003e\u003cem\u003eGovernance\u003c/em\u003e\u003cem\u003eand\u003c/em\u003e\u003cem\u003eControl:\u003c/em\u003e\u003cem\u003eFinancial\u003c/em\u003e\u003cem\u003eMarkets\u003c/em\u003e\u003cem\u003e\u0026amp;\u003c/em\u003e\u003cem\u003eInstitutions\u003c/em\u003e, forth- coming.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eBrogi, Marina and Valentina Lagasio\u003c/strong\u003e, \u0026ldquo;Environmental, social, and governance and company profitability: Are financial intermediaries different?,\u0026rdquo; \u003cem\u003eCorporate\u003c/em\u003e\u003cem\u003eSocial\u003c/em\u003e\u003cem\u003eResponsibility\u003c/em\u003e\u003cem\u003eand\u003c/em\u003e\u003cem\u003eEnvi- ronmental\u003c/em\u003e\u003cem\u003eManagement\u003c/em\u003e, 2019, \u003cem\u003e26\u003c/em\u003e(3), 576\u0026ndash;587.\u003c/li\u003e\n \u003cli\u003e\u003cimg width=\"9\" height=\"1\" src=\"data:image/png;base64,R0lGODdhDgABAHcAACH+GlNvZnR3YXJlOiBNaWNyb3NvZnQgT2ZmaWNlACwAAAAADgABAIAAAAABAgMCA4SPWAA7\" alt=\"image\"\u003e \u003cstrong\u003e, Antonella Cappiello, Valentina Lagasio, and Fabrizio Santoboni\u003c/strong\u003e, \u0026ldquo;Determinants of insurance companies\u0026rsquo; environmental, social, and governance awareness,\u0026rdquo; \u003cem\u003eCorporate\u003c/em\u003e\u003cem\u003eSocial\u003c/em\u003e\u003cem\u003eRe-\u0026nbsp;\u003c/em\u003e\u003cem\u003esponsibility\u003c/em\u003e\u003cem\u003eand\u003c/em\u003e\u003cem\u003eEnvironmental\u003c/em\u003e\u003cem\u003eManagement\u003c/em\u003e, 2022, \u003cem\u003e29\u003c/em\u003e(5), 1357\u0026ndash;1369.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eCarannante, Maria, Valeria D\u0026rsquo;amato, and Maria Sole Staffa\u003c/strong\u003e, \u0026ldquo;How ESG corporate reputa- tion affects sustainability premiums in the insurance industry,\u0026rdquo; \u003cem\u003eFrontiers\u003c/em\u003e\u003cem\u003ein\u003c/em\u003e\u003cem\u003eApplied\u003c/em\u003e\u003cem\u003eMathematics\u0026nbsp;\u003c/em\u003e\u003cem\u003eand\u003c/em\u003e\u003cem\u003eStatistics\u003c/em\u003e, 2024, \u003cem\u003e10\u003c/em\u003e, 1474565.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eChiaramonte, Laura, Alberto Dreassi, Andrea Paltrinieri, and Stefano Piser`a\u003c/strong\u003e, \u0026ldquo;Sus- tainability practices and stability in the insurance industry,\u0026rdquo; \u003cem\u003eSustainability\u003c/em\u003e, 2020, \u003cem\u003e12\u003c/em\u003e(14), 5530.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eD\u0026rsquo;Amato, Valeria, Rita D\u0026rsquo;Ecclesia, and Susanna Levantesi\u003c/strong\u003e, \u0026ldquo;Firms\u0026rsquo; profitability and ESG score: A machine learning approach,\u0026rdquo; \u003cem\u003eApplied Stochastic Models in Business and Industry\u003c/em\u003e, 2024, \u003cem\u003e40\u0026nbsp;\u003c/em\u003e(2), 243\u0026ndash;261.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eEling, Martin\u003c/strong\u003e, \u0026ldquo;Is the insurance industry sustainable?,\u0026rdquo; \u003cem\u003eThe\u003c/em\u003e\u003cem\u003eJournal\u003c/em\u003e\u003cem\u003eof\u003c/em\u003e\u003cem\u003eRisk\u003c/em\u003e\u003cem\u003eFinance\u003c/em\u003e, 2024, \u003cem\u003e25\u0026nbsp;\u003c/em\u003e684\u0026ndash;703.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eEuropean Central Bank\u003c/strong\u003e, \u0026ldquo;The importance of insurance companies for financial stability,\u0026rdquo; \u003cem\u003eht tp\u003c/em\u003e\u003cem\u003es: // ww w. ec b. eu ro pa .e u/ pu b/ pd f/ fs r/ ar t/ec b. fsra rt20 09 12 en _0 5. pd f\u003c/em\u003e, 2009.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eFrench, Andrea, Mathieu Vital, and Dean Minot\u003c/strong\u003e, \u0026ldquo;Insurance and financial stability,\u0026rdquo; \u003cem\u003eBank of England Quarterly Bulletin (Q3)\u003c/em\u003e, 2015.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eGaravito, Fabian, Ulf Lewrick, Tomas Stastny, and Karamfil Todorov\u003c/strong\u003e, \u0026ldquo;Shifting land- scapes: Life insurance and financial stability,\u0026rdquo; \u003cem\u003eBIS Quarterly Review\u003c/em\u003e, 2024, p. 21.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eGe, Shan and Michael S Weisbach\u003c/strong\u003e, \u0026ldquo;The role of financial conditions in portfolio choices: The case of insurers,\u0026rdquo; \u003cem\u003eJournal\u003c/em\u003e\u003cem\u003eof\u003c/em\u003e\u003cem\u003eFinancial\u003c/em\u003e\u003cem\u003eEconomics\u003c/em\u003e, 2021, \u003cem\u003e142\u003c/em\u003e(2), 803\u0026ndash;830.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eGupta, Aparna, Abena Owusu, and Jue Wang\u003c/strong\u003e, \u0026ldquo;Assessing US insurance firms\u0026rsquo; climate change impact and response,\u0026rdquo; \u003cem\u003eThe\u003c/em\u003e\u003cem\u003eGeneva\u003c/em\u003e\u003cem\u003ePapers\u003c/em\u003e\u003cem\u003eon\u003c/em\u003e\u003cem\u003eRisk\u003c/em\u003e\u003cem\u003eand\u003c/em\u003e\u003cem\u003eInsurance-Issues\u003c/em\u003e\u003cem\u003eand\u003c/em\u003e\u003cem\u003ePractice\u003c/em\u003e, 2023, pp. 1\u0026ndash;34.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eHue, B, A Jinks, J Spain, M Bora, and S Siew\u003c/strong\u003e, \u0026ldquo;Investment risk for long-term investors: risk measurement approaches: Considerations for pension funds and insurers,\u0026rdquo; \u003cem\u003eBritish\u003c/em\u003e\u003cem\u003eActuarial\u0026nbsp;\u003c/em\u003e\u003cem\u003eJournal\u003c/em\u003e, 2019, \u003cem\u003e24\u003c/em\u003e, e16.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eInternational Association of Insurance Supervisors\u003c/strong\u003e, \u0026ldquo;Insurance and financial stability,\u0026rdquo; \u003cem\u003eht\u003c/em\u003e\u003cem\u003etp\u0026nbsp;\u003c/em\u003e\u003cem\u003es:\u0026nbsp;\u003c/em\u003e\u003cem\u003e//\u0026nbsp;\u003c/em\u003e\u003cem\u003eww w. ia is .o rg /u pl oa ds /2 02 2/ 01 /I ns ur an ce _a nd _f in an ci al _s ta bi li ty\u0026nbsp;\u003c/em\u003e\u003cem\u003e.p df .p df\u003c/em\u003e, 2011.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eKalyani, Sushil and Rima Mondal\u003c/strong\u003e, \u0026ldquo;Is ESG disclosure creating value propositions for the firms? An SLR and meta-analysis of how ESG affects the financials of a firm,\u0026rdquo; \u003cem\u003eCorporate\u003c/em\u003e\u003cem\u003eOwnership\u003c/em\u003e\u003cem\u003e\u0026amp;\u0026nbsp;\u003c/em\u003e\u003cem\u003eControl\u003c/em\u003e, 2024, \u003cem\u003e21\u0026nbsp;\u003c/em\u003e(1), 96\u0026ndash;117.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eKhovrak, Inna\u003c/strong\u003e, \u0026ldquo;ESG-driven approach to managing insurance companies\u0026rsquo; sustainable develop- ment,\u0026rdquo; \u003cem\u003eInsurance\u003c/em\u003e\u003cem\u003eMarkets\u003c/em\u003e\u003cem\u003eand\u003c/em\u003e\u003cem\u003eCompanies\u003c/em\u003e, 2020, \u003cem\u003e11\u003c/em\u003e(1), 42\u0026ndash;52.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eKim, Sang and Zhichuan Li\u003c/strong\u003e, \u0026ldquo;Understanding the impact of ESG practices in corporate finance,\u0026rdquo; \u003cem\u003eSustainability\u003c/em\u003e, 2021, \u003cem\u003e13\u003c/em\u003e(7), 3746.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eKnox, Benjamin and Jakob Ahm S\u0026oslash;rensen\u003c/strong\u003e, \u0026ldquo;Insurers\u0026rsquo; investments and insurance prices,\u0026rdquo;\u0026nbsp;\u003cem\u003eAvailable at SSRN 4394474\u003c/em\u003e, 2024.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eKoˇcovi\u0026acute;c, Jelena, Tatjana Rakonjac-Anti\u0026acute;c, and Marija Jovovi\u0026acute;c\u003c/strong\u003e, \u0026ldquo;The impact of the global financial crisis on the structure of investment portfolios of insurance companies,\u0026rdquo; \u003cem\u003eEconomic Annals\u003c/em\u003e, 2011, \u003cem\u003e56\u0026nbsp;\u003c/em\u003e(191), 143\u0026ndash;161.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eLiu, Chi Sang and Hailiang Yang\u003c/strong\u003e, \u0026ldquo;Optimal investment for an insurer to minimize its proba- bility of ruin,\u0026rdquo; \u003cem\u003eNorth American Actuarial Journal\u003c/em\u003e, 2004, \u003cem\u003e8\u0026nbsp;\u003c/em\u003e(2), 11\u0026ndash;31.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eMontero, Jos\u0026acute;e-Mar\u0026acute;ıa, Viviane Naimy, Nermeen Abi Farraj, and Rim El Khoury\u003c/strong\u003e, \u0026ldquo;Nat- ural disasters, stock price volatility in the property-liability insurance market and sustainability: An unexplored link,\u0026rdquo; \u003cem\u003eSocio-Economic\u003c/em\u003e\u003cem\u003ePlanning\u003c/em\u003e\u003cem\u003eSciences\u003c/em\u003e, 2024, \u003cem\u003e91\u003c/em\u003e, 101791.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eRousov\u0026acute;a, Linda Fache and Margherita Giuzio\u003c/strong\u003e, \u0026ldquo;Insurers\u0026rsquo; investment strategies: Pro-or coun- tercyclical?,\u0026rdquo; \u003cem\u003eECB Working Paper Series No 2299\u003c/em\u003e, 2019.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eSoana, Maria-Gaia et al.\u003c/strong\u003e, \u0026ldquo;Corporate social responsibility and financial performance: Evidence from the financial sector,\u0026rdquo; \u003cem\u003eCorporate Ownership \u0026amp; Control\u003c/em\u003e, 2011, \u003cem\u003e8\u0026nbsp;\u003c/em\u003e(2), 27.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eTommaso, Caterina Di and Maria Mazzuca\u003c/strong\u003e, \u0026ldquo;The stock price of European insurance compa- nies: What is the role of ESG factors?,\u0026rdquo; \u003cem\u003eFinance\u003c/em\u003e\u003cem\u003eResearch\u003c/em\u003e\u003cem\u003eLetters\u003c/em\u003e, 2023, \u003cem\u003e56\u003c/em\u003e, 104071.\u003c/li\u003e\n\u003c/ol\u003e"},{"header":"Tables","content":"\u003cp\u003eTables 1 to 8 are available in the Supplementary Files section\u003c/p\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Insurance companies, profitability, ESG, underwriting, investments","lastPublishedDoi":"10.21203/rs.3.rs-6534211/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6534211/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eInsurance companies strive to incorporate ESG in their businesses, as managers recognize that strong ESG performances are necessary to guarantee access to capital and enhance company value (Di Tommaso and Mazzuca, 2023; Eling, 2024). This article focuses on the moderating role of ESG in determining insurers’ profits. The findings reveal that high ESG ratings amplify the association of profits with underwriting premiums, while weakening the dependence of profits from investments. These findings are important for insurance executives, providing deeper insight into how the improvement of ESG dimensions impacts profits from separate channels. Understanding the dynamics of insurance profits is also relevant from a supervisory perspective, as a sound and well-performing insurance sector is crucial to preserve stability at the systemic level.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eJEL Codes: \u003c/strong\u003eG22; G30.\u003c/p\u003e","manuscriptTitle":"Evidence for the moderating role of ESG on the profitability of insurance companies","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-04-29 07:54:02","doi":"10.21203/rs.3.rs-6534211/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"9f65a64e-4c0e-4017-b470-0a26165dfe56","owner":[],"postedDate":"April 29th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[{"id":47718809,"name":"Finance"}],"tags":[],"updatedAt":"2025-04-29T07:54:02+00:00","versionOfRecord":[],"versionCreatedAt":"2025-04-29 07:54:02","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-6534211","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-6534211","identity":"rs-6534211","version":["v1"]},"buildId":"XKTyCvWXoU3ODBz1xrDgd","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}