Insurers are more jittery about climate risk, BlackRock says

[MADRID] Insurers are getting increasingly worried about the perils of climate risk after a run of natural disasters, according to a report by BlackRock Inc.

The big majority of insurers now see climate as an investment risk and are positioning portfolios accordingly, said Charles Hatami, global head of the Financial Institutions Group and Financial Markets Advisory at BlackRock.

For its survey, BlackRock spoke with 362 executives at insurance companies representing US$27 trillion in investable assets across 26 markets.

As many as 95 per cent of insurance executives who took part in study confirm that climate risk will have a major impact on how they build their portfolios over the next two years. While geopolitical risk remains the top concern for insurers, more than one in three respondents now see environmental concerns as a potential headwind, the survey showed.

Other major themes for insurers this year include the growing emphasis on sustainability and the need they see to diversify into higher-yielding assets.

Meanwhile, 60 per cent of insurers expect to increase their investment risk exposure over the next two years, the highest level since BlackRock starting tracking the information in 2015.

"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," BlackRock said.

The need to diversify is also driving the growth of investments in private markets, given their superior potential for returns. By 2023, insurers believe their average private-market allocations will reach 14 per cent of their total portfolio from about 11 per cent now. Liquidity also remains a priority, with 41 per cent of insurers looking to increase cash allocations over the coming year.

BLOOMBERG