Navigating through uncertainty: A new playbook for insurers

Hello, I'm Mark Erickson, Global Head of BlackRock's Financial Institutions Group.

I'm pleased to present to you our 12th Annual Global Insurance Report, titled “Navigating through uncertainty: A new playbook for insurers.”

This year's Global Insurance Report comes in the second post-Covid year, amidst five structural mega forces affecting the macro outlook and examined more in depth in BlackRock Investment Institute's 2023 Midyear Outlook: the aging population; the transition to a decarbonized economy; global fragmentation; the changing roles of banks and non-bank financial institutions; and artificial intelligence and digital disruption.  These factors, coupled with upcoming changes to insurance regulatory and accounting regimes, create new challenges and opportunities for Chief Investment Officers and other investors.

Our survey of 378 insurers representing $29 Tn in assets reflects four key themes in terms of what our clients are doing to navigate the new environment.

1 Embracing a new investment landscape

Recession Risk, which was the second highest investment concern of 2022 at 50%, rose to become the top concern of 2023 at 59%. For the second year in a row, the top economic surprise was Inflation Dynamics at 71%. In terms of emerging risks, the Banking Sector at 56% was the greatest area of concern. In light of these concerns, 60% of respondents plan to review their Strategic Asset Allocation, with a bias to flexibility. Private Markets allocations remain limited with 69% of respondents noting only a 1-6% current allocation, though 89% of respondents expect to opportunistically increase this exposure over the next two years.

2 Implementing the transition

In 2021, 95% of insurers told us climate risk would impact their portfolio construction; in 2022, 85% said they were likely to commit to specific climate objectives in their investment portfolios; and this year, following significant policy support in major economies, respondents are focusing on implementing these objectives into actual investment opportunities. 62% of respondents are focused on Clean Energy Infrastructure; 46% on Green Real Estate; and 42% on Core Infrastructure. However, challenges to implementation exist and 54% cited market volatility as the biggest hurdle.

3 Managing regulatory and accounting change

Regulatory change is happening globally. The implementation of Risk-Based Capital (RBC) standards in Asia, Solvency II reforms in Europe, the evolution of Solvency UK, and the National Association of Insurance Commissioners' (NAIC) review of structured securities in the US are influencing investment decision-making. Given these changes, 65% of respondents stated that they will need to reallocate assets and 49% are reviewing risk frameworks and reporting requirements. Accounting changes, notably IFRS 9 on financial investments and IFRS 17 on insurance contracts, are also being implemented. More than 40% of respondents noted that these changes will drive: a review of risk frameworks and reporting requirements; a review of Strategic Asset Allocation; and a need to reallocate assets.

4 Leveraging technology solutions

The use of technology is central to insurers' priorities and intersects with the other themes identified in our report. In terms of tech and infrastructure investments, the top two priorities cited were Risk Management and increased operational efficiency. In terms of how technology is intersecting with Strategic Asset Allocation (SAA), more than 40% sought workflow automation and better integration of data, regulatory capital and liabilities.

Thank you to everyone who participated in the survey and shared their insights. We hope that this report proves thought provoking and insightful. We look forward to partnering with you on navigating these new mega forces affecting this uncertain macro backdrop and continuing our discussion with you on these key themes.