BlackRock's sixth annual global survey of 300 senior insurance executives found that two-thirds of insurers believe that rethinking their investment portfolios will be essential to improving or even just maintaining the future profitability of their business. Meanwhile, 41% of respondents are facing growing pressure to generate a greater contribution from investments to their overall profitability.
The survey, conducted in July, shows that 66% of insurers believe that reassessing their investment portfolios will be vital to improving future profitability. Historically, only 28% of respondents have made generating higher investment returns their top priority.
Most respondents — 84% — said embracing private market or alternative assets will be a key component in improving investment returns, while nearly 70% see "significant room" to improve their management of portfolio risk and capital efficiency.
Insurers are moving toward private market assets, including illiquid assets, with 39% saying they are looking to increase their allocation to private market assets, up from just 16% in 2016.
Meanwhile, 34% of respondents plan to increase their allocations to commercial real estate equity, which scores the highest of all private market asset classes, followed by infrastructure equity and private equity, both at 33%.
Changes to asset allocation have already played a role. More than half of respondents — 57% — said the most effective investment action they have taken to increase profitability was to increase their exposure to private or alternative assets.
Asset allocation trends also signal a move away from fixed income. Just 9% of respondents intend to increase allocations to government bonds, compared to 47% in 2016, while the proportion intending to reduce exposure has risen to 31%, from 3% last year. Respondents' appetite for municipal bonds is also much weaker, with just 9% planning to increase allocations, compared to 42% last year.