BlackRock Study: Global Insurers Adapting to the New Market Regime

• Two-thirds of insurers (60%) are readjusting strategic asset allocation (SAA) with a focus on flexibility and new investment opportunities
• 89% of insurers increasing allocations to private markets, especially direct lending (60%)
• 62% of respondents see opportunity in clean energy infrastructure
• Nearly half (47%) of insurers prioritizing technology investments to manage investment and operational risk

Global insurers are adapting to a challenging macro environment in 2023, according to BlackRock’s 12^th annual Global Insurance Report. To do so, they are adopting a strategic asset allocation (SAA) that favors flexibility, allowing them to take advantage of opportunities in public and private markets, and invest in the transition to a low-carbon economy. The report includes findings from 378 insurance investors surveyed across global markets, representing nearly $29 trillion USD in assets under management.

Charles Hatami, Global Head of BlackRock’s Financial and Strategic Investors 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 aging 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.”

Embracing a new investment landscape

Inflation remains front of mind for insurers, with 71% of respondents selecting it as the biggest economic surprise for the second year in a row. 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.

Prioritizing flexibility and quality

In response, insurers are adopting an SAA that favors 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.

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. 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.

Mark Erickson, Global Head of BlackRock’s Financial Institutions Group, 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.”

Investing in the transition to a low-carbon economy

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%). Challenges with implementing sustainable investments remain, however, with 54% of respondents citing market volatility as the biggest hurdle.

Leveraging technology solutions

Against an increasingly volatile and complex macroeconomic and regulatory backdrop, and with insurers growing their allocations to private markets, nearly half of respondents (47%) globally cite risk management as a driver of increased technology investments over the next two years. In addition, 47% of insurers are considering technology that increases operational efficiency and reduces cost. Integration of climate risk (38%) and compliance with regulatory and reporting requirements (45%) are also cited as considerations for technology solutions. When asked where technology can add value to their strategic asset allocation, insurers report workflow automation (45%), liability integration (42%), and modelling of alternatives in SAA (35%) as areas of focus.

About the BlackRock Global Insurance Report

The BlackRock Global Insurance Report, now in its twelfth 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 2023 encapsulates the views of 378 senior industry executives in 27 markets. Taken together these companies represent investable assets of approximately US$29tn. The associated report complements the global findings with regional results, comments from industry peers and insights from BlackRock experts.

About BlackRock

BlackRock’s purpose is to help more and more people experience financial well-being. As a fiduciary to investors and a leading provider of financial technology, we help millions of people build savings that serve them throughout their lives by making investing easier and more affordable. For additional information on BlackRock, please visit www.blackrock.com/corporate

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