BlackRock: Global insurance firms to turn to private investments

Global insurance firms are changing their investment practices amid swiftly shifting market conditions, with a focus on "resilient portfolio construction, liquidity management," and integrated technology, according to BlackRock's 11th annual Global Insurance Report released Tuesday.

Among other findings, the survey found that 79% of insurers plan to review their long-term strategic asset allocation and almost half (48%) will review their risk appetite thresholds this year. Moreover, some 60% of insurers said that inflation was their top market concern, with asset price volatility (59%) and liquidity (58%) coming in second and third in the list of concerns.

In an effort to diversify their portfolios, 87% of insurers plan to increase allocations to private investments over the next two years – on average, this amounted to a 3% increase compared to their current allocation.

Some 37% of insurers plan to increase their allocations to cash, and 31% will increase their allocations to fixed income.

The survey, conducted in June and July 2022, encompassed 370 insurance firms across 26 markets, representing almost $28 trillion in assets under management.

"The current investment landscape is a result of major upheaval over the past two years, and uncertainty is only expected to increase," said Charles Hatami, managing director and global head of BlackRock's financial institutions group and the financial markets advisory business, in a news release accompanying the report. "The insurance clients with whom we partner understand that innovation at scale and a nimble approach will be critical to navigate the complexity ahead."

With respect to other issues, 85% of survey respondents said they are "either likely or very likely" to commit to specific climate objectives for their portfolio, while 62% said that decision- making related to sustainability will be a "major trend shaping their industry in the coming years."

In addition, 65% of surveyed firms said that digital transformation and technology will be the most important trend in the insurance industry over the next 12 to 24 months, compared with 44% in the 2021 survey. Virtually all (98%) of the respondents reported using artificial intelligence, machine learning, predictive analytics, blockchain, or a combination of these technologies, with predictive analytics being used both for the management of insurance business (65%) and investment operations (72%).

In addition, 54% of respondents said they plan to increase the use of bond ETFs in their portfolios, to potentially improve liquidity, while 48% will increase use of such ETFs to gain yield. According to BlackRock research, eight of the 10 largest U.S. insurers now said they are using bond ETFs, with five having adopted them after the volatile markets of March 2020. BlackRock added in the release that it recently forecast that global bond ETF assets under management could reach $5 trillion by 2030.

BlackRock had about $8.49 trillion in assets under management at the end of the second quarter, according to an earnings release issued July 15.