BlackRock, a global asset management firm, reports that insurers are focusing on increased investments in private markets, clean energy infrastructure, and innovative technology in 2024, according to its 13th annual Global Insurance Report.
For the third year in a row, the report shows that a majority of insurers plan to raise their allocations to private markets, with 91% of respondents indicating they will do so within the next two years.
This figure climbs to 96% for insurers in APAC and North America. The report is based on insights from 410 insurance investors across 32 markets, managing nearly $27 trillion in assets.
Mark Erickson, Global Head of BlackRock’s Financial Institutions Group, commented: “We’ve seen rapidly accelerated demand for private markets among insurers in recent years, given these investments’ dual benefits of diversification and increased income generation.”
With 2024 anticipated to be a landmark election year, insurers are increasingly concerned about how political uncertainty could affect macro risks, identifying regulatory developments (68%) and rising geopolitical tensions and fragmentation (61%) as their top worries.
Additionally, market risks such as interest rate volatility (69%) and liquidity concerns (52%) were highlighted as critical.
Despite these challenges, 74% of insurers have no plans to alter their current risk profiles. Many insurers noted the value of partnerships in enhancing their internal expertise for risk assessment and portfolio management, with 40% of respondents emphasising that an investment partner who understands both their insurance business and operating model is crucial to achieving their strategic goals.
In public markets, 42% of insurers plan to boost investments in government and agency bonds, while 33% are focusing on inflation-linked bonds, as 46% view inflation as a significant macro risk. Additionally, 44% of insurers aim to increase their holdings in cash and short-term instruments to maintain liquidity.
On the private market front, insurers are increasingly allocating funds to various forms of private debt. This includes opportunistic private debt (41%), private placements (40%), direct lending (39%), and infrastructure debt (34%).
As private debt has broadened to cover more lending options, BlackRock’s report highlights its potential to meet insurance firms’ needs for long-term assets that align with their liabilities, as well as to generate investment income from illiquidity premiums.
Moreover, 52% of insurers plan to increase their exposure to multi-alternative investments, seeking more flexibility and customisation in their portfolios.
Olivier Van Eyseren, Head of the Financial Institutions Group, EMEA for BlackRock, added: “Insurers face unique challenges when evaluating strategic asset allocation to alternative investments, including regulatory issues, liquidity needs, and higher capital charges. An important part of our work with insurance clients is helping them navigate these short-term complexities while working toward the best possible long-term portfolio outcomes.”
Almost all (99%) of the insurers surveyed have established low-carbon transition goals within their investment portfolios.
Among them, 57% identified the management and mitigation of climate risks as a primary motivation. Other factors driving the establishment of low-carbon transition goals include addressing stakeholder and beneficiary interests and meeting regulatory requirements.
To advance their low-carbon transition strategies, insurers indicated that clean energy infrastructure, such as wind and solar (60%), and technologies like batteries and energy storage (60%) are their primary focus areas. Furthermore, 66% of participants expressed stronger confidence in investing in the low-carbon transition compared to a year ago.
In a landscape marked by economic and regulatory challenges, insurers are increasingly aware of the need to invest in technology.
They highlighted integrated asset allocation (63%) and asset liability management (61%) as key strategic priorities for their technology platforms.
Additionally, 51% mentioned that integrating regulatory capital is another area where technology can provide significant benefits. As insurers aim to enhance their investments in private markets, 53% view private asset modelling as a crucial opportunity to utilise technology effectively.