Ninety-Five Percent of Global Insurers Believe Climate Risk is Investment Risk
November 15 2021 - 7:00AM
Business Wire
BlackRock study shows insurers representing
US$27trn in assets are prioritising sustainable investing,
diversification to higher-yielding assets and technological
transformation, as concerns about climate change intensify
Insurers are increasingly concerned about the implications of
climate risk, with 95% of executives confirming it will have a
significant impact on portfolio construction over the next two
years, according to BlackRock’s tenth annual Global Insurance
Report. The findings come following an unprecedented year of
natural disasters, reflecting the perspective of an industry that
is directly exposed to physical risks presented by climate
change.
BlackRock consulted 362 insurance company executives across 26
markets on their investment intentions and business priorities for
the year ahead. In total, the participating firms represent
US$27trn in investable assets. The growing impact of
sustainability, the requirement to diversify portfolios into higher
yielding asset classes and the drive to digitize businesses are the
dominant themes for insurers this year, the research has found.
Commenting on the findings, Charles Hatami, Global Head of the
Financial Institutions Group and Financial Markets Advisory at
BlackRock said: “An overwhelming majority of insurers view climate
risk as investment risk, and are positioning portfolios to mitigate
the risks and capitalize on the transformational opportunities
presented by the transition to a net-zero economy. Insurers’
growing focus on sustainability should be a clarion call for the
investment industry.”
Accelerating emphasis on sustainability
Sustainable investing has continued to rise in prominence among
global insurers, reflecting the tectonic shift towards sustainable
investing. Half of respondents in the study indicated their reason
for reallocating existing assets to sustainable investments is the
ability of these investments to generate better risk adjusted
performance.
While geopolitical risk remains the top concern for insurers,
environmental risk is now considered a serious threat to their
firm’s investment strategy, with more than one in three respondents
citing it as a potential headwind.
The findings also highlight that insurers continue to embed
sustainability into their investment processes and strategies -
nearly half of respondents confirmed they have turned down an
investment opportunity over the past 12 months due to ESG
concerns.
Increase in risk appetite and diversification into non-core
assets
A further dominant trend identified in BlackRock’s study is the
need to diversify into higher yielding assets, with 60% of insurers
expecting to increase their investment risk exposure over the next
two years. This represents the highest level since BlackRock
started tracking this information in 2015. However, this increase
appears to be out of necessity, as the ongoing low interest rate
regime continues to press insurers to consider investments in
alternatives and higher-yielding fixed income assets in search of
income.
One area in particular where allocations are changing is private
markets, given their diversification and superior return potential.
By 2023, insurers believe their average private-market allocations
will reach 14% of their total portfolio (vs. ~11% currently), and
no insurer expects to have a strategic allocation to private
markets of less than 5%.
However, as insurers increase their risk appetite, liquidity
remains a key priority. As a result, 41% of insurers are looking to
increase their cash allocations over the coming year. ETFs are also
seen as an effective tool to manage liquidity and enhance
yield, with 87% of respondents anticipating that liquidity
management could be a key factor to increasing allocation to ETF
over the next 1-2 years.
Accelerating technology investment
Accelerated digital transformation is also a priority for
insurers, driven largely by the impact of the pandemic. Nearly two
thirds of insurers are looking to increase spending on technology
over the next two years.
In particular, the industry is moving towards integrated Asset
and Liability Management (ALM) capabilities due to the competitive
landscape, regulatory complexity, and the economic environment.
Over the next two years, 56% of respondents plan to focus on ALM
integration, with 45% prioritising multi-asset risk management.
This is driven by the push to diversify investments, specifically
into private markets, which has highlighted the need for a single
technology solution with a whole portfolio view across a full
spectrum of asset classes.
Digitisation is also playing an important role in meeting
net-zero ambitions: 41% of respondents confirmed they are looking
to increase investment in technology that integrates climate risk
and metrics, a clear sign that analytics for “transition-ready”
investments are a priority for insurers over the years ahead.
Daniel Dunay, Head of Americas Financial Institutions at
BlackRock adds: “In the decade since we have launched our Global
Insurance Report, there has been an industry-wide transformation in
how technology, sustainability, and regulatory complexities
together impact insurers’ investment priorities. A comprehensive
and transparent view of dynamic portfolio risk, particularly risk
associated with climate change, is not just a competitive edge for
insurers – it’s a necessity. “
About the BlackRock Global Insurance Survey
The BlackRock Global Insurance Survey, now in its tenth year,
provides industry-leading insight into the thinking and plans of
the global insurance industry through independently conducted
online and telephone interviews of senior insurance executives
across the globe. This year’s survey conducted in June – July 2021
encapsulates the views of 362 senior industry executives in 26
markets. Taken together these companies represent investable assets
of more than US$27tn, encompassing approximately two thirds of the
sector. The associated interactive report complements the global
findings with regional results, comments from industry peers and
insights from BlackRock experts.
About BlackRock
BlackRock’s purpose is to help more and more people experience
financial well-being. As a fiduciary to investors and a leading
provider of financial technology, we help millions of people build
savings that serve them throughout their lives by making investing
easier and more affordable. For additional information on
BlackRock, please visit www.blackrock.com/corporate
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211115005087/en/
Thomasin Bentley 646-231-1769 thomasin.bentley@blackrock.com
BlackRock (NYSE:BLK)
Historical Stock Chart
From Mar 2024 to Apr 2024
BlackRock (NYSE:BLK)
Historical Stock Chart
From Apr 2023 to Apr 2024