Insurers taking on more risk since pandemic started – bfinance report

Insurance companies are embracing more risk since the beginning of the COVID-19 pandemic, said a new report from bfinance.

Of the 90 insurers surveyed in October, 73% said there is still room to add more risk to the investment side of the balance sheet, the report said.

Seventy-four percent of respondents said they anticipate an increase in portfolio illiquidity in over the next 18 months, and 61% said they plan to cut their allocations to fixed income, which has traditionally seen the largest allocations by insurers that require significant liquidity in their portfolios, over that same period.

The appetite for risk has been driven by record low interest rates that have created a challenging return environment among traditional fixed-income allocations, and insurers are more willing to invest in less traditional asset classes for insurers. Sixty-one percent expect to add more asset classes to their portfolios in the next 18 months.

Forty-nine percent of respondents said changes made since March 2020 have been influenced by the pandemic. Since then, 68% of respondents have increased their allocations to alternative investments, and 79% expect to increase their allocations to alternatives over the next 18 months.

Regarding specific asset classes, 75% expect to have allocations to emerging markets debt in 18 months, while 62% said they had an allocation to that asset class in October, and only 49% had that allocation in March 2020.

The pandemic has also inspired insurance companies to embrace ESG processes, the report said. In October, 71% of survey respondents said they integrate environmental, social and governance factors into their investment processes, while 32% said they did so in March 2020.

The average asset allocation of the surveyed insurers was 67% fixed income, 10% equities, 8% alternatives, and 7% each real estate and money market funds/cash. The total does not come to 100% due to rounding.

Bfinance surveyed 90 insurance company executives from 20 countries with combined investment portfolios totaling nearly $5 trillion.

The report is available on bfinance's website. Registration is required.