AG Insurance CIO Wim Vermeir on bond and infrastructure opportunities and the case for optimism

Insurers often find themselves at the front end of the climate crisis. The impact of a hurricane or a wildfire devastating a local community will in part be picked up by property and reinsurance firms, while life insurers increasingly have to prepare for the consequences of countries failing to meet the 1.5-degree target set in the Paris Agreement. Beyond liabilities, insurers are also among the first to be criticised for their financing and underwriting of fossil fuels.

This increasingly stark outlook has prompted Allianz board member Günther Thallinger to warn that climate change could spell the end of “capitalism as we know it.” In a three-degree world, the economic damage would simply become uninsurable, he argued. 

Yet speaking to another longstanding veteran of the insurance industry, Wim Vermeir, CIO of Belgian insurer AG Insurance, the outlook does not appear quite so gloomy. Despite being based in Brussels, arguably closer to rising coastlines than Allianz’s Munich headquarters, Vermeir does not share Thallinger’s pessimism.

He acknowledges, however, that risks are mounting: “If climate risks explode continue to rise, insurance will be challenged, but I am not that negative.”

The evolution of ESG funds

Like Thallinger, Vermeir is no stranger to ESG investing. He began managing his first ESG fund in the mid-1990s, long before sustainable investing entered the mainstream. Back then, negative screening dominated. “It was all about negative screening, human rights, no child labour, no weapons, but that evolved into a full range of sustainable funds as we began adding environmental and governance criteria,” he says.

The insurer’s approach has continued to evolve. “We moved from avoiding the worst sinners to a more holistic approach, understanding how a company interacts with its environment and stakeholders,” he says.

The motivation has been relatively straightforward: “As an insurance company, we are long-term investors. We want to invest in things that are not too risky and that are future proof.”

As the largest life insurer in Belgium, with more than €73bn in assets under management and covering nearly a quarter of the country’s life insurance market, Vermeir believes the company also has a wider role to play. Paraphrasing Spiderman, he notes: “With great power comes great responsibility.”

Transition challenges

Translating these ambitions into practice, the insurer has set itself ambitious net-zero targets. By the end of the decade, it plans to reduce its carbon footprint by 55% across its equity and corporate bond holdings, in line with a 1.5-degree pathway. It has also pledged €15bn to impact investments by 2027, of which €13.2bn  has already been deployed. This includes allocations of 18% to green bonds, 14%to sustainable real estate, 6% to renewable energy and 3% to green transport.

Yet Vermeir acknowledges that meeting these targets is not straightforward. One challenge is that some of the largest emitters in AG Insurance’s portfolio are also central to the transition itself.

“Electricity now accounts for the largest part of our carbon footprint. But it would be cynical to lower our carbon footprint by selling electricity companies. They are a key player in the energy transition,” he says.

He gives the example of Fluxys, a Belgian infrastructure firm focussing on gas transmission and storage. Transporting LNG means that is by no means squeaky clean, but it also increasingly converts hydrogen and biomethane whilst branching out into carbon capture, transport and storage. “Fluxys is still fossil gas today, but the plan is to use the same network for hydrogen transport and for carbon capture. That is the transition we want to support” he explains.

The same logic applies to other hard-to-abate sectors. “We still invest in sectors like chemicals and cement, but only the best in class. It is easy to reduce your footprint by excluding everything, but then you miss those crucial industries for the transition,” he says.

Fixed income limits

A more difficult obstacle lies in the insurer’s large allocation to fixed income, which still forms the bulk of its portfolio under Solvency II constraints. According to its latest financial reports, around €37.5bn is invested in fixed income assets such as sovereign bonds, corporate bonds and structured notes. These assets have so far been excluded from its net-zero commitments.

“We measure the carbon footprint of government bonds, but we do not set targets there. Our targets are for real estate, infrastructure, corporate bonds and equities,” Vermeir says.

Sovereign bonds remain a strategic area of opportunity. The insurer has recently scaled back its exposure to US and European equities, driven by concerns over valuations and the potential long-term impact of US president Trump’s trade wars. Instead, allocations have increased to Spanish, French, Belgian and Austrian sovereign bonds.

Vermeir argues that this still fits within a broader climate strategy. He sees the EU as a leader in the green transition and highlights the rapid expansion of the green and sustainability-linked bond market. With nearly 7 per cent of all corporate and sovereign debt issued in Europe in 2024 labelled green, according to data by the European Environment Agency, the market has seen a strong increase. AG Insurance will choose green bonds whenever an issuer offers both conventional and green alternatives, Vermeir says. 

Private markets outlook

Despite its cautious approach to risk, AG Insurance is expanding its footprint in private markets without, Vermeir argues, moving up the risk ladder. Its impact portfolio now includes private real estate, private equity and infrastructure, though the emphasis remains on predictable and lower-risk cashflows suited to matching life liabilities.

“People think private is only venture capital and really aggressive high-risk credit. We did a lot of social housing and a lot of infrastructure equity. We focus on predictability of cash flows and lower risk,” he says.

Transparency in private markets can be limited, but the insurer is working with peers to improve disclosure standards in the infrastructure investment universe.

As our conversation draws to a close, we return to the ESG headwinds facing the financial sector. Vermeir reflects on the collapse of the UN-convened Net Zero Insurance Alliance last year, after a series of member exits. By contrast, the Net Zero Asset Owner Alliance, of which AG Insurance is a member, has remained stable, he points out. Indeed, unlike it’s peers, NZAOA has not witnessed a similar exodus of members and has even increased its coverage, according to its latest progress report.

“It would be a pity if the asset-owner alliance went the way of the insurance or banking alliances. I see many members committed to staying,” he says. He believes the longer-term nature of asset-owner liabilities plays a key role, and that the financial rationale for net zero remains compelling. “We may be in a phase of despair after the hype, but the underlying trend remains positive.”

Discuss this in person? Wim Vermeir will take part in the Net Zero Investor Insurance Summit on 3 December, more information below.