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Shifting markets and future-proofing portfolios

Global insurers are innovating their investment approaches amidst rapidly-changing market conditions and focusing on resilient portfolio construction, liquidity management and integrated technology, according to BlackRock's 11th annual Global Insurance Report.

The new report surveyed 370 insurance investors across 26 markets, representing nearly $28tn in assets under management.

BlackRock Financial Institutions Group global head Charles Hatami said, "The current investment landscape is a result of major upheaval over the past two years and uncertainty is only expected to increase. The insurance clients with whom we partner understand that innovation at scale and a nimble approach will be critical to navigate the complexity ahead."

More than three quarters (79%) of the insurers surveyed plan to review their long-term strategic asset allocation (SAA) and nearly half (48%) will review risk appetite thresholds this year.

Most insurers (60%) reported inflation as their top market concern, with asset price volatility (59%) and liquidity (58%) close behind. To further diversify their portfolios, most insurers (87%) plan to increase allocations to private investments over the next two years, which would represent a 3% average increase versus their current allocation.

Insurers also plan to increase allocations to liquid assets, suggesting a barbell approach, with 37% of respondents intending to allocate to cash and 31% to fixed income.

More than two-thirds of the survey respondents reported they are either likely or very likely to implement broad ESG targets in their portfolios in the next 24 months. In addition, 85% reported they are either likely or very likely to commit to specific climate objectives for their portfolio.

Two-thirds (62%) of the insurers surveyed see decision making related to sustainability as a major trend shaping their industry in the coming years. The right technologies and tools will be critical for insurers to ensure consistency across sustainability analytics, with applications including regulatory disclosure and reporting, through to evaluating investment allocations.

Sixty-five percent of insurers reported digital transformation and technology as the most important trend in the insurance industry over the next 12-24 months, compared to 44% in 2021. Nearly all (98%) reported using AI, machine learning, predictive analytics, blockchain, or a combination of these technologies, with predictive analytics being utilized both for the management of insurance business (65%) and investment operations (72%).

When it comes to future tech spend, the vast majority of insurers surveyed plan to prioritize investments for asset and liability management (68%), along with regulatory compliance (54%) and market data (53%).

The surveyed insurers reported they plan to increase the use of fixed income ETFs in their portfolios, primarily to potentially improve liquidity (54%) and yield (48%). According to BlackRock research, eight of the ten largest US insurers now report using bond ETFs, with five having adopted them after the volatile markets of March 2020.

BlackRock recently forecast that global bond ETF assets under management could reach $5tn by 2030 – and insurance investors are a major driver of this new approach.



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