The low interest rate environment, which has been exacerbated by the Covid-19 pandemic, and the implementation and enhancement of Risk-Based Capital (RBC) regulations in certain markets in Asia, have impacted insurers’ investment decisions, BlackRock said.
Insurers are focusing on portfolio resilience, business model review, sustainability and technological transformation, following the fallout from the Covid-19 pandemic, and are affecting their risk appetite and asset allocation, according to the «Global Insurance Report,» published by investment management firm BlackRock on Wednesday.
In particular, some 60 percent of insurers are worried about negative portfolio performance and potential Covid-related pay-outs, and many are looking to increase cash holdings.
The same share is looking to reposition their portfolios to combine a focus on higher-quality assets with more diversification, as well as increasing portfolio flexibility with strong governance, the survey said.
Looking to Alternatives
Low interest rates in developed markets are prompting insurers to look to illiquid alternatives and higher yielding emerging markets assets.
«The greater need for yield, duration and diversification are leading to enhanced focus on investing in alternatives such as real estate and private equity, which we expect insurers to increase in allocation over the next 12-24 months,» Kimberly Kim, head of BlackRock’s financial institutions group for APAC, said.
New Business Models
A sea change is expected among insurers' business models and where they invest to generate profits in the near future. Sixty percent of respondents envisaged a «more flexible, targeted product offering» with closer policyholder engagement in an environment of low rates.
Asian insurers, in particular, are looking to evolve their offerings: 45 percent want to focus on fewer, more profitable products, while in the life and multi-line segments, 63 percent prioritize the development of life insurance products with an investment focus, BlackRock said.
ESG Growth
Seventy-eight percent of respondents also noted a stronger focus on ESG, with a greater emphasis on social and governance aspects, as a result of the Covid-19 experience.
Half of them invested in ESG-specific strategies in the past year, and 52 percent made ESG a key component of their investment risk assessment for new investments.
The survey, now in its ninth year, sought the views of 360 senior executives across 25 major insurance markets. In total, the participating companies represent investable assets of more than $24 trillion and encompass two-thirds of the sector.
