Global insurers are adjusting their strategic asset allocation (SAA) to navigate a challenging macroeconomic landscape in 2023, according to BlackRock (NYSE:BLK)'s 12th annual Global Insurance Report. The report, which surveyed 378 insurance investors representing nearly $29 trillion in assets under management, revealed insurers are favoring flexibility in their SAA to capitalize on opportunities in public and private markets and invest in the transition to a low-carbon economy.
Charles Hatami, Global Head of BlackRock's Financial and Strategic Investors Group, highlighted the five structural mega forces impacting the macro outlook: the aging population; the transition to a low-carbon economy; global fragmentation; changing roles of banks and non-bank financial institutions; and digital disruption. These factors, alongside upcoming changes to insurance regulations and accounting regimes, present new challenges and opportunities for Chief Investment Officers and other investors.
Inflation remains a top concern for insurers, with 71% of respondents selecting it as the biggest economic surprise for the second consecutive year. Recession risk was the most selected macroeconomic concern, chosen by 59% of respondents. Over half (55%) of insurers globally anticipate further financial instability occurring in the banking sector – this rises to 77% for North American respondents. In APAC, residential real estate concerns were cited by 55% of respondents.
To respond to these challenges, insurers are adapting their SAA to favor flexibility. Despite yields now available in public markets, most insurers (89%) plan to increase their selective exposure to private markets. Approximately 60% of respondents expect to increase allocations to direct lending, while more than a third anticipate reducing allocations to real estate debt, real estate equity, and private equity.
Public fixed income will continue as a core part of insurers' SAA, with 92% planning to maintain or increase their allocation. Within this category, 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, emphasized the opportunities available in both public and private markets, and the importance of a flexible investment approach and robust risk management framework, enabled by technology.
Sustainability considerations are now integral to most insurers' investment processes globally. Two-thirds of respondents (62%) globally expect the greatest investment opportunity from the transition to a low-carbon economy to be in clean energy infrastructure. However, 54% of respondents cited market volatility as the biggest hurdle to implementing sustainable investments.
Nearly half of respondents (47%) globally cited risk management as a driver of increased technology investments over the next two years. Similarly, 47% of insurers are considering technology that increases operational efficiency and reduces cost. Integration of climate risk and compliance with regulatory and reporting requirements were also cited as considerations for technology solutions.
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