Global insurers are adapting to this year’s challenging macro environment by adopting a strategic asset allocation that favours flexibility, a new report has revealed.

BlackRock’s 12th annual Global Insurance Report said that flexibility allowed them to take advantage of opportunities in public and private markets and invest in the transition to a low-carbon economy.

The report provides 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.

BlackRock, the world’s largest asset management company, said the survey conducted in June-July encapsulated the views of 378 senior industry executives in 27 markets.

Taken together these companies represent investable assets of approximately $29 trillion.

Charles Hatami, global head of BlackRock’s financial and strategic investors group, said: “This year’s Global Insurance Report comes in the second post-Covid year, amid five structural mega forces affecting the macro outlook: the ageing population; the transition to a low-carbon economy; global fragmentation; the changing roles of banks and non-bank financial institutions; and digital disruption.

“These factors, coupled with upcoming changes to insurance regulations and accounting regimes, create new challenges and opportunities for chief investment officers and other investors.”

The report said that inflation remained front of mind for insurers, with 71 per cent of respondents selecting it as the biggest economic surprise for the second year in a row.

Recession risk, chosen by 59 per cent, was the most selected macroeconomic concern.

More than half of insurers (55 per cent) globally believe that further financial cracks are most likely to occur in the banking sector, indicating concerns over the stability and health of financial institutions. This rises to 77 per cent for North American respondents.

In Asia-Pacific, 55 per cent of respondents cite concerns over residential real estate.

In response, the report said, insurers were adopting a strategic asset allocation that favoured flexibility. While insurers report their allocations overall will remain similar to previous years, respondents show a bias for quality within both public fixed-income and private-market allocations, BlackRock found.

Despite the yields now available in public markets, most insurers (89 per cent) plan to increase their exposure selectively to private markets.

Almost two thirds (60 per cent) of respondents expect to increase allocations to direct lending. However, more than one-third of respondents expect to reduce allocations to real estate debt, real estate equity and private equity.

Public fixed income will continue to be a core part of insurers’ strategic asset allocation, with 92 per cent planning to maintain or increase their allocation. Within this, more than half of insurers (51 per cent) plan to increase their allocations to government bonds and agency debt.

Mark Erickson, global head of BlackRock’s financial institutions group, said: “Despite the challenge ahead for insurers as they navigate the new investment landscape, responses to our survey highlight the opportunities available in both public and private markets.

“In order to take advantage of these, insurers are considering a flexible investment approach and robust risk management framework, enabled by technology.”

The survey found that sustainability considerations are embedded in most insurers’ investment processes globally, with respondents now focused on opportunities presented by the transition to a low-carbon economy.

Nearly two-thirds of respondents (62 per cent) globally expect the greatest investment opportunity from this transition to be in clean energy infrastructure, with the highest percentage from insurers in North America (74 per cent) compared with Europe, Middle East and Africa (62 per cent), APAC (57 per cent) and Latin America (56 per cent).

Challenges with implementing sustainable investments remain, however, with 54 per cent of respondents citing market volatility as the biggest hurdle.

Against an increasingly volatile and complex macroeconomic and regulatory backdrop, and with insurers growing their allocations to private markets, the report said, nearly half of respondents (47 per cent) globally cited risk management as a driver of increased technology investments over the next two years.

In addition, 47 per cent of insurers are considering technology that increases operational efficiency and reduces cost.

Integration of climate risk (38 per cent) and compliance with regulatory and reporting requirements (45 per cent) were also cited as considerations for technology solutions.

When asked where technology can add value to their strategic asset allocation, insurers report workflow automation (45 per cent), liability integration (42 per cent), and modelling of alternatives in strategic asset allocation (35 per cent) as areas of focus.