Insurers must embrace investment risk

47% of insurers expect to increase their exposure to risks.

Weak economic growth and historically low negative rates reinforce a trend towards greater risk appetite for insurers despite geopolitical uncertainty, a BlackRock-commissioned study has found. Against a backdrop of geopolitical uncertainty, depressed bond yields, and anaemic economic growth, BlackRock’s fifth annual global insurance survey of 315 senior insurers, conducted by the Economist Intelligence Unit, found that just 8% of respondents plan to reduce their exposure to investment risk, against 47% who expect to increase it and 46% who plan to maintain over the next 12-24 months.

This result signals a slightly greater level of caution than in 2015, when 57% of insurers globally planned to increase investment risk against 38% who expected to maintain it.

Investment risks
Weak global growth has been a key area of concern in past polls, with around 50% citing this as one of the most serious issues in their investment strategy since 2014, but it now firmly overlaid with a sense that the political environment has become much more uncertain. Geopolitical risk was cited by 51% as one of the most serious risks to investment strategy this year, up from 25% in 2014. A persistent low interest rate environment was the most cited serious market risk to investment strategies, according to 59% of respondents, followed closely by asset price volatility (57%).

Whilst these results pre-date the Brexit vote in late June last year, an additional flash poll of more than 100 insurers found the anticipated effects of Brexit are seen as reinforcing pre-existing trends, particularly the notion that interest rates will remain lower for longer. Insurers’ willingness to assume greater investment risk contrasts with the large percentages who also expect to increase allocation to cash and government bonds. 50% of insurers said they planned to increase their cash holdings in the next few months, up from 36% last year, while 47% of insurers globally still expect to increase allocations to government bonds – the highest figure across the entire range of fixed income assets.