2020 vision: a new BlackRock report shows how an unprecedented year is creating lasting change for insurers

More than three quarters of insurers say the impact of COVID 19 is accelerating their focus on ESG

21^st October 2020, LONDON - Global senior insurance executives expect to see a significant shift in the industry as a result of a year that has seen them navigating uncharted waters, according to new BlackRock research. The study captures the insights of 360 senior executives across 25 major insurance markets. In total, the participating companies represent investable assets of more than US$24tn and encompass two thirds of the sector.

The survey, now in its 9^th year, identified four prominent themes that are front of mind for insurers following the fallout from the pandemic - sustainability, portfolio resilience, business model review and technological transformation. These trends are also having an impact on insurers' appetite to risk and asset allocation with over 60% of insurers worried about negative portfolio performance and potential COVID-related pay-outs. Nevertheless, nearly half of all insurers say they are looking to increase risk exposure over the next 12-24 months, with alternatives and equities being the favoured asset classes. At the same time, the survey revealed that insurers are looking to increase cash holdings, with many waiting for the right investment opportunities.

Prioritising sustainability objectives

The study revealed that 78% of insurers believe the COVID experience is accelerating their focus on ESG, with a greater emphasis on social and governance aspects. Over 50% of respondents have invested in specific ESG strategies in the last year. A further 52% have made ESG a key component of their investment risk assessment for new investments and nearly one in three (32%) have turned down an investment opportunity in the last 12 months due to ESG concerns. Portfolio implementation of ESG takes many forms: reducing carbon intensity of existing portfolios, creating portfolio aligned with Paris agreement objectives, and, thematic and impact investing with insurers looking to embed sustainability across both sides of the balance sheet.

Commenting on the results, Charles Hatami, Global Head of BlackRock's Financial Institutions Group and Financial Markets Advisory (FMA), said: 'The feedback in this year's study is remarkably consistent across the globe. The COVID crisis is accelerating structural trends in what could be a pivotal year for the industry, with sustainability, technology and low interest rates as key drivers. Insurers need to reposition their businesses and portfolios much faster than anticipated, and that also creates opportunity, whether it is to get closer to customers or to more deeply embed sustainability into their investment approach.'

Enhancing portfolio flexibility for resilience

In the face of prevailing uncertainty and prolonged low rates, close to 60% are looking to reposition their portfolios to combine a focus on higher quality assets with more diversification, as well as increasing portfolio flexibility with strong governance. Risk appetite is remarkably robust with 47% looking to increase risk. The macro and market risks insurers are most concerned about include geopolitics (57%), asset price volatility (64%) and liquidity (58%). Persistent low rates across developed markets are leading insurers to embrace meaningful allocations to illiquid alternatives and higher yielding emerging markets assets.

Anna Khazen, Head of BlackRock's Financial Institutions Group for EMEA, noted: 'Resilience and diversification are at the heart of insurers' investment approach, with the recent environment re-enforcing the importance of both. Whilst we see a continued desire to diversify, in particular into private assets, almost two thirds of companies are focused on the quality and resilience of their credit portfolios, combined with nimbler decision making.'

Re-inventing business models

With the pandemic putting an additional layer of pressure on an industry already in flux, the near future will require management to focus on how they will reinvent their business models and where they invest to generate profits. Over 60% envisage a more flexible, targeted product offering with closer policyholder engagement in an environment of low rates. Life and multiline insurers plan to prioritise specialised pandemic risk coverage (62%) and life insurance with an investment focus (57%) over the next two years. Business models are also being redesigned to reflect the accelerating focus on sustainability.

Patrick Liedtke, EMEA Head of Strategic Clients, Financial Institutions Group, commented: 'When our Global Insurance Survey uncovered ESG as a central theme two years ago, many companies were still struggling with the concept and what it meant for their investment strategies. Today, the global insurance industry as a whole is leading a charge on sustainability across public and increasingly, private markets and that is transforming the ways in which to invest and manage risk.'

Technological transformation

Close to 70% of insurers plan to prioritise technology as they see it transforming the industry across all its dimensions; changing how risk is assessed in the context of policies; how yield optimisation is achieved for investments ranging from public to private markets; how product is distributed to policy holders; and importantly, how organisations are run with a meaningful portion of their workforce at home. The industry can claim remarkable success in conducting its business remotely with only 24% of respondents reporting technology gaps.

About the BlackRock Global Insurance Survey

The BlackRock Global Insurance Survey, now in its ninth 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 between June-July 2020 encapsulates the views of 360 senior industry executives in 25 markets. Taken together these companies represent investable assets of more than US$24tn, encompassing two thirds of the sector. The associated interactive report, https://www.blackrock.com/institutions/en-gb/insights/investment-actions/global-insurance-report-2020, complements the global findings with regional results, comments from industry peers and insights from BlackRock experts.

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