Reinsurance is an integral transaction to the insurance business
and carries real economic consequences. While the previous literature on risk
management has examined the effects from reinsurance, in more recent years
there is a growing interest on the topic of sustainability and its consequences
on corporate risk taking. In this article we analyze a sample of international
insurers between 2013 and 2022. We show that the purchase of reinsurance is
negatively related to their sustainability, as measured by environmental,
social, and governance (ESG) scores. Furthermore, we illustrate that insurers’
losses decrease in higher levels of reinsurance and sustainability. However,
while reinsurance brings down insurers’ profitability, sound ESG scores are
related to lower expenses and increasing profitability. Our interpretation is
that strong ESG profiles may serve as a cheaper alternative to reinsurance in
order to mitigate claim risk. These findings support the previous views that
sustainability has a positive impact on financing costs and valuation.
JEL classification numbers: G22.
Keywords: ESG, Reinsurance,