A new study by investment management company, BlackRock, has reflected that re/insurers executives were increasingly concerned about the implications of climate risk, with 95% of them confirming it will have a significant impact on portfolio construction over the next two years.
The latest research findings by BlackRock in its 10th Annual Global Insurance Report came on the heels of an unprecedented year of natural disasters, reflecting the perspective of an industry that is directly exposed to physical risks presented by climate change.
According to news reports, tThe study shows re/insurers, representing $27 trillion in assets, are prioritizing sustainable investing, diversification to higher-yielding assets and technological transformation, as concerns about climate change intensify.
The investment consulting firm also reported that the growing impact of sustainability, the requirement to diversify portfolios into higher yielding asset classes and the drive to digitize businesses were the dominant themes for insurers this year.
Speaking on the research findings, Global Head of the Financial Institutions Group and Financial Markets Advisory at BlackRock, Charles Hatami, said: “An overwhelming majority of insurers view climate risk as investment risk, and are positioning portfolios to mitigate the risks and capitalize on the transformational opportunities presented by the transition to a net-zero economy.
“Insurers’ growing focus on sustainability should be a clarion call for the investment industry”, Hatami added.
BlackRock further reported that roughly half of the 362 respondents in the study indicated their reasons for re-allocating existing assets to sustainable investments derived from the capacity of these investments to generate better risk adjusted performance.
The findings also highlighted that insurers continue to embed sustainability into their investment processes and strategies, with nearly half of respondents also confirming they have turned down an investment opportunity over the past 12 months due to ESG concerns.
Another dominant trend identified in the research firm’s study is the need to diversify into higher yielding assets, with 60% of insurers expecting to increase their investment risk exposure over the next two years.
However, this increase appears to be out of necessity, as the ongoing low interest rate regime continues to press insurers to consider investments in alternatives and higher-yielding fixed income assets in search of income.
According to BlackRock, with accelerated digital transformation is also a priority for insurers, driven largely by the impact of the pandemic, nearly two thirds of insurers are looking to increase spending on technology over the next two years.
Commenting on the report findings, Head of Americas Financial Institutions at BlackRock, Daniel Dunay, noted: “In the decade since we have launched our Global Insurance Report, there has been an industry-wide transformation in how technology, sustainability, and regulatory complexities together impact insurers’ investment priorities.
“A comprehensive and transparent view of dynamic portfolio risk, particularly risk associated with climate change, is not just a competitive edge for insurers – it’s a necessity”, Dunay stressed.
