26 September 2017 Insurance

Insurers turn to investment portfolios to boost profits: BlackRock

Insurers are facing a profitability squeeze and are increasingly looking to their investment portfolios as a larger component of profitability, according to a study commissioned by BlackRock.

BlackRock’s sixth annual global survey of 300 senior insurance executives found that two-thirds of insurers agree that re-thinking the investment portfolio will be vital to maintaining or improving the future profitability of their business. Over two-fifths (41 percent) said they were under growing pressure to generate a greater contribution from investments to their overall profitability.

Against a backdrop of ultra-low interest rates and challenging underwriting margins, insurers have taken numerous measures to grow revenues and cut costs in years past, and their efforts have helped somewhat: almost half of survey respondents (44 percent) reported no change to their profitability over the past five years, despite the headwinds facing the industry.

To achieve these results, most insurers have primarily focused their efforts on underwriting and operational changes. Now, however, two-thirds (66 percent) believe rethinking their investment portfolio will be key to improving future profitability. This is a major shift: only 28 percent of respondents have made generating higher investment returns their top priority historically.

An overwhelming majority of respondents (84 percent) state that embracing private market or alternative assets will be a key component in improving the returns of investment portfolios, while almost 70 percent see “significant room” to improve their management of portfolio risk and capital efficiency.

Patrick Liedtke, head of BlackRock’s insurance asset management business in Europe, commented: “Insurers are under increasing pressure to improve their profit margins against a backdrop of continued geopolitical uncertainty, the low yield environment, regulatory constraints and intense underwriting competition. We’re seeing attention turn to investment portfolios and performance as a greater source of total profitability. As appetite for increased investment risk exposure has ebbed over the last year, insurers are looking instead to optimize for risk and are turning away from traditional asset classes in order to generate returns.”

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