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.
Mr David Lomas, Global Head of BlackRock’s Insurance Asset Management Business, said: “The global investment landscape continues to be extremely challenging for insurers. While overall risk appetite has moderated slightly since last year, insurers are taking on significantly more risk compared to historical norms as they widen their search for additional sources of yield and returns.”
Weak global growth and low interest rate
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%).
Asset allocation conundrum
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. This points to selective risk taking across asset classes.
The long arm of Solvency II
Regulatory risk remains a significant macro risk factor globally, ranking third in 2016 at 46%, six percentage points higher than in 2015. Against that, however, new regulation is no longer seen as an especially critical driver of change in the insurance industry.