Insurance sustainability and investment teams often operate in silos. At an event hosted by New England Asset Management (NEAM) and Better Insurance Network during SUSTAIN Festival, industry leaders gathered to discuss how to break these barriers and execute a practical, “business-as-usual” approach to climate risk that supports both sides of the balance sheet.

Facing the reality of P&C investment constraints

An essential first step for sustainability leaders looking to work more closely with their investment teams is to fully understand the structural constraints insurers face when allocating investment capital – which are particularly acute for those with property and casualty (P&C) underwriting portfolios.

Unlike life insurers, P&C carriers typically have short-tail liabilities. Asset-liability matching (ALM) rules require them to mirror this in their investments, meaning they must focus primarily on highly liquid, investment-grade fixed income. In turn, this makes longer-dated assets that support the climate transition but lock away capital for 15 or 20 years (such as biodiversity funds, renewables infrastructure or forestry projects, for example) difficult to hold.

Capital charges for certain sustainable assets, such as private equity or unrated ‘green’ infrastructure, can also be punitive (up to 35% in some jurisdictions), forcing insurers to be highly selective about where they deploy capital.

“By nurturing greater alignment between government policies, transition goals, regulation and investment portfolios, regulators have the opportunity to create an environment in which investment strategies become not only attractive, but also competitive,” said Todd Isaac, Hiscox’s Chief Investment and Treasury Officer.

“When you bring all this together, insurers can allocate capital confidently and effectively towards innovative and sustainable solutions.”

Issuance in “green-labelled” instruments such as green, sustainability, and social (GSS) bonds has also slowed significantly. Once the go-to means of inflecting impact in insurers’ portfolios, GSS bond issuance has slowed in certain markets – by around 30% in the US over the last year, according to NEAM Managing Director Graham Kirk – leading insurers to seek more creative, “unlabelled” ways to support the transition.

Strategic investment that looks beyond the label

Despite these constraints, the panel highlighted several ways insurers can build a coherent, cross-balance sheet strategy that supports both the transition and the bottom line.

The first is to leverage investment as a resilience tool. For example, directing capital toward assets that reduce physical risk (e.g., city regeneration or resilience infrastructure) can lead to improved loss ratios on the underwriting side.

“If we invest in assets which help reduce physical and transition risks from a product perspective, that translates into improved loss ratios for us on the underwriting side, and also reduces the volatility on our overall portfolio,” explained Sufen Lim, Head of International M&A for Tokio Marine Holdings (TMHD).

Linked to this is adopting a longer-term mindset in underwriting, argued Better Insurance Network founder Antony Ireland. “We know insurers should be thinking beyond the annual underwriting renewal cycle to meet the longer-term risks associated with climate adaptation and the energy transition. However, an overlooked consideration is that a shift to multi-year policies would also unlock greater flexibility to invest in longer-dated assets, creating a win-win for impact.”

The next idea is to invest in traditional assets that naturally align with sustainability goals, without testing ALM boundaries or burning through capital charges.

US municipal debt is a common investment class for Lloyd’s insurers, for example, yet these entities are often deploying initiatives that support the green agenda – such as the build-out of renewable utilities – and have a significant social impact by promoting affordable housing and building community resilience, Kirk noted.

According to Isaac, Hiscox’s bond portfolio evaluates compliance with the Science Based Targets initiative (SBTi), met target in 2025 and is on track to meet 50% compliance by 2030. “That’s a lot of sustainable investing we’re already doing embedded in our asset base without taking a haircut on yield or investing in brand new strategies,” he said.

There are also opportunities to make highly targeted investments that generate a return while supporting underwriting objectives.

TMHD, for example, made a strategic acquisition of a marine insurtech company whose telematic technology supports the transition by improving risk management and preventing environmental disasters – while also helping underwriters price those risks more accurately.

“It’s really about getting creative,” said Kirk. “Insurers should look at sectors or issuers that may not necessarily have the ‘green’ label but are operating in that similarly aligned sectors – that’s where you can find opportunities to make real impact.”

From aspiration to execution

These trends are playing out while the regulatory landscape for UK insurers is shifting from principles to strategic implementation.

According to Kasha Mleko, Head of Sustainability for NEAM, the latest supervisory statement from the PRA (SS5/25) signals that insurers must now provide a clear, repeatable path of evidence for how they are incorporating climate risk into both their risk appetite and strategic asset allocation.

“The PRA’s supervisory statement from 2019 was quite aspirational, but SS5/25 is much more explicit – if SS3/19 was about setting direction, SS5/25 is fundamentally about robust execution,” she said.

However, breaking down silos and adopting a systemic mindset is about more than regulatory compliance.

When investment teams and underwriters work in lockstep, they don’t just mitigate risk – they create a more resilient and capital-efficient business that can remain competitive, on both sides of the balance sheet, in an increasingly uncertain future.