BlackRock's annual Global Insurance Report is hot off the press and despite increasing market volatility and geopolitical concerns, it seems that the insurance industry is readier than at any other time since the crisis to embrace asset sided risk.
Based on interviews with insurance executives at over 350 firms, managing a combined total of €7.8tn in assets, BlackRock concludes that 47% intend to increase allocations to riskier assets - a huge increase on its own findings in 2017, when under 10% intended to put on risk.
The strategy of the day for insurers is Infrastructure and other Real Asset categories - and having historically had a debt focus to finance real assets, there's plenty of evidence that - where regulations permit in areas like shareholder funds - allocations towards equity "direct" or infrastructure fund investments are increasing.
The corollary of real asset investing is of course an ever greater need to properly structure and hold liquid or even cash based assets and BlackRock finds that the de rigeur approach is to increase both cash and illiquid allocations - thus making hay as interest rates creep up whilst simultaneously capturing the regulatory capital and economic rewards of longer term assets. Greater comfort in Europe with the parameters of Solvency 2, together with improved macroeconomic data may be the reasons for this more recent change is risk appetite, argues BlackRock...
Insurers worldwide see increased investment returns as a key tool to boost overall business profitability. First identified last year, this trend is now accompanied by a marked change in insurers’ willingness to take risk. Given the size of insurers’ investment portfolios globally, this is an important shift that will affect markets everywhere.