Abstract
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.