Global insurers are focused on increased allocations to private markets, clean energy infrastructure and utilising innovative technology in 2024, according to BlackRock’s 13th annual Global Insurance Report.
For the third year running, BlackRock’s annual report shows a majority of insurers are planning increased investments in private markets, with 91 per cent of all respondents saying they will do so within the next two years. This figure increases to 96 per cent for APAC and 96 per cent for North American insurers.
The report tracks insights from 410 insurance investors surveyed across 32 markets, representing nearly USD27 trillion USD in assets under management.
Mark Erickson, Global Head of BlackRock’s Financial Institutions Group, says: “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.”
Navigating risk: finding the right investment partner
With 2024 projected to be the biggest election year in history, insurers see political uncertainty impacting macro risks, citing regulatory developments (68 per cent) and rising geopolitical tension and fragmentation (61 per cent) as their top concerns.
Additionally, interest rate risk (69 per cent) and liquidity risk (52 per cent) were highlighted as the most serious market risks for insurers. Despite this outlook, 74 per cent of insurers have no plans to change their current risk profiles. Notably, many insurers reported they benefit from partnerships to augment their internal expertise for risk evaluation as well as portfolio construction. According to 40 per cent of survey respondents, an investment partner who understands both their insurance business and its operating model is fundamental to the success of insurers’ strategic priorities.
Asset allocation: a balanced approach across public and private assets
Within public markets, 42 per cent of those surveyed planned to increase allocations to government and agency bonds. Inflation-linked bonds are also a priority, with 33 per cent planning to increase exposure, given nearly half of insurers (46 per cent) identify inflation as a major macro risk. Additionally, 44 per cent of respondents are looking to increase their allocations to cash and short-term instruments for liquidity.
In private markets, insurers report they are looking to increase allocations to private debt across multiple categories, including opportunistic private debt (41 per cent), private placements (40 per cent), direct lending (39 per cent), and infrastructure debt (34 per cent). As the scope of private debt has expanded to encompass a wider array of lending opportunities, BlackRock’s report indicates this asset class can support insurance investment objectives for those needing long-term assets to support long-term liabilities, as well as increasing investment income through illiquidity rather than other investment characteristics. In addition, over half of insurers (52 per cent) reported they will increase allocations to multi-alternative investments for greater flexibility and customisation.
Olivier Van Eyseren, Head of the Financial Institutions Group (FIG) for BlackRock in EMEA, says: “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.”
Seizing the moment for clean energy infrastructure
Nearly all (99 per cent) of insurers surveyed have set a low-carbon transition objective within their investment portfolio, with 57 per cent of respondents citing management and/or mitigation of climate risks as a top motivation for doing so. Additional drivers for setting low-carbon transition objectives include responding to stakeholder and beneficiary interest and fulfilling regulatory requirements.
To support their low-carbon transition strategy, clean energy infrastructure such as wind and solar (60 per cent) and technologies such as batteries and energy storage (60 per cent) were identified as the top two thematic areas that insurers plan to target. In addition, 66 per cent of respondents stated that they have more conviction now towards investing in the low-carbon transition than they did one year ago.
Leveraging innovative technology
In an increasingly volatile and complex macroeconomic and regulatory environment, insurers recognise the importance of investing in technology. Integrated asset allocation (63 per cent) and asset liability management (61 per cent) were named as strategic priorities for their technology platforms.
Regulatory capital integration (51 per cent) was also cited as an area where technology could add value. As insurers look to continue their deployment into private markets, 53 per cent of respondents view private asset modeling as an additional area to leverage technology, the firm says.
