BlackRock Study: Global Insurers are Future-Proofing Portfolios Amidst Shifting Markets

Incorporation of ESG and climate considerations into the investment process is growing in prominence amongst insurers.

Global insurers are innovating their investment approaches amidst rapidly changing market conditions this year, focusing on resilient portfolio construction, liquidity management, and integrated technology, according to BlackRock’s 11th annual Global Insurance Report. The firm surveyed 370 insurance investors across 26 markets, representing nearly $28 trillion USD in assets under management.

Charles Hatami, Global Head of BlackRock’s Financial Institutions Group, said, “The current investment landscape is a result of major upheaval over the past two years, and uncertainty is only expected to increase. The insurance clients with whom we partner understand that innovation at scale and a nimble approach will be critical to navigate the complexity ahead.”

Accelerated portfolio reviews to balance risk and liquidity

Seventy-nine percent of insurers surveyed plan to review their long-term strategic asset allocation (SAA) and nearly half (48%) will review risk appetite thresholds this year.  Most insurers (60%) reported inflation as their top market concern, with asset price volatility (59%) and liquidity (58%) close behind. To further diversify their portfolios, most insurers (87%) plan to increase allocations to private investments over the next two years, which would represent a 3% average increase versus their current allocation. Insurers also plan to increase allocations to liquid assets, suggesting a barbell approach, with 37% of respondents intending to allocate to cash and 31% to fixed income.

Anna Khazen, Head of BlackRock's Financial Institutions Group for EMEA, said, “Insurers maintain a sustained appetite for risk assets, but as we move on from a long period of steady growth and inflation to the new regime of heightened macro and market volatility, their goals are more dynamic than a search for yield or general diversification.  On a whole portfolio basis, insurers are now re-evaluating the role that every asset class must play to build in resilience.” 

Focused on an integrated approach to ESG and climate investing

More than two-thirds of the survey respondents reported they are either likely or very likely to implement broad ESG targets in their portfolios in the next 24 months.  In addition, 85% reported they are either likely or very likely to commit to specific climate objectives for their portfolio. Sixty- two percent of insurers surveyed see decision making related to sustainability as a major trend shaping their industry in the coming years. The right technologies and tools will be critical for insurers to ensure consistency across sustainability analytics, with applications including regulatory disclosure and reporting, through to evaluating investment allocations.

Continued innovation in risk management: from digital transformation to ETFs

Sixty-five percent of insurers reported digital transformation and technology as the most important trend in the insurance industry over the next 12-24 months, compared to 44% in 2021. Nearly all (98%) reported using artificial intelligence, machine learning, predictive analytics, blockchain, or a combination of these technologies, with predictive analytics being utilized both for the management of insurance business (65%) and investment operations (72%). When it comes to future tech spend, the vast majority of insurers surveyed plan to prioritize investments for asset and liability management (68%), along with regulatory compliance (54%) and market data (53%). 

The insurers surveyed are also driving adoption of new investment approaches such as bond ETFs. Insurers report they plan to increase the use of fixed income ETFs in their portfolios, primarily to potentially improve liquidity (54%) and yield (48%).  According to BlackRock research, eight of the ten largest US insurers now report using bond ETFs, with five having adopted them after the volatile markets of March 2020. 1  And so far this year, BlackRock has identified 17 insurers throughout Europe, the Middle East, and Africa who are using ETFs for the first time.2 Given fixed income ETFs are often seen as efficient vehicles to generate yield and income in a low-cost and scalable way, BlackRock recently forecast that global bond ETF assets under management could reach $5 trillion USD by 20303 – and insurance investors are a major driver of this new approach.

About the BlackRock Global Insurance Survey

The BlackRock Global Insurance Survey, now in its eleventh year, provides industry-leading insight into the thinking and plans of the global insurance industry through independently conducted online and telephone interviews of senior insurance executives across the globe. This year’s survey conducted in June-July 2022 encapsulates the views of 370 senior industry executives in 26 markets. Taken together these companies represent investable assets of approximately USD28tn. The associated interactive report complements the global findings with regional results, comments from industry peers and insights from BlackRock experts.