“Global insurers are adopting a strategic asset allocation (SAA) that favours flexibility, allowing them to take advantage of opportunities in public and private markets, and invest in the transition to a low-carbon economy,” suggests a new report from asset manager BlackRock.
The firm’s report included findings from 378 insurance investors surveyed across global markets, representing nearly $29 trillion in assets under management.
Mark Erickson, Global Head of BlackRock’s Financial Institutions Group, said, “This year’s Global Insurance Report comes in the second post-Covid year, amid five structural mega forces affecting the macro outlook: the ageing population; the transition to a low-carbon economy; global fragmentation; the changing roles of banks and non-bank financial institutions; and digital disruption.
“These factors, coupled with upcoming changes to insurance regulations and accounting regimes, create new challenges and opportunities for Chief Investment Officers and other investors.”
According to BlackRock’s report, inflation remains “front of mind” for insurers, with 71% of respondents selecting it as the biggest economic surprise for the second year running.
“Recession risk, chosen by 59%, was the most selected macroeconomic concern. Over half of insurers (55%) globally believe that further financial cracks are most likely to occur in the banking sector, indicating concerns over the stability and health of financial institutions – this rises to 77% for North American respondents. In APAC, 55% of respondents cite concerns over residential real estate,” BlackRock noted.
The firm highlighted that in response, insurers are adopting an SAA that favours flexibility.
“While insurers report their allocations overall will remain similar to previous years, respondents show a bias for quality within both public fixed income and private market allocations,” the report said.
BlackRock continued, “Despite the yields now available in public markets, most insurers (89%) plan to increase their exposure selectively to private markets.”
Almost two thirds (60%) of respondents expect to increase allocations to direct lending. However, more than one-third of respondents expect to reduce allocations to real estate debt, real estate equity, and private equity.
BlackRock stated that public fixed income will continue to be a core part of insurers’ SAA, with 92% planning to maintain or increase their allocation. Within this, over half of insurers (51%) plan to increase their allocations to government bonds and agency debt.
Olivier Van Eyseren, Head of BlackRock’s Financial Institutions Group, EMEA, said, “Despite the challenge ahead for insurers as they navigate the new investment landscape, responses to our survey highlight the opportunities available in both public and private markets.
“In order to take advantage of these, insurers are considering a flexible investment approach and robust risk management framework, enabled by technology.”
BlackRock’s report also explained that sustainability considerations are embedded in most insurers’ investment processes globally, with respondents “now focused on opportunities presented by the transition to a low-carbon economy.”
Two-thirds of respondents (62%) globally expect the greatest investment opportunity from this transition to be in clean energy infrastructure, with the highest percentage from insurers in North America (74%) compared to EMEA (62%), APAC (57%) and Latin America (56%).
However, the asset manager observed that challenges with implementing sustainable investments remain, with 54% of respondents citing market volatility as the biggest hurdle.
