The onset of the pandemic triggered a major change in how insurance companies invest, according to a report from Bfinance.
Titled Insurer Investment Survey, the report’s authors spoke to 86 insurers across 20 countries. The investment portfolios of these companies reportedly total over $5trn. Just over half were based in Europe.
Among its findings were that nearly half (49%) say that changes to their investment strategies since March 2020 have been influenced by the pandemic, with 61% both expecting to add more asset classes to their portfolios in the next 18 months, along with reducing allocation to fixed income over the same time period. Nearly three quarters of respondents (74%) said they expected portfolio illiquidity to increase in the next year-and-a-half.
Between March 2020 and September 2021, the report found that the proportion of insurers investing in emerging market debt had risen from 49% to 62%, while those investing in infrastructure equity over the same period had risen to 52% from 36%.
The authors wrote: “Some of the well-established shifts of the ‘prepandemic’ period—such as the movement away from fixed income and towards ‘alternative’ investment strategies and illiquid investments—are observed continuing in the ‘pandemic’ era.”
Altering allocation
They added: “However, there are new or altered trends in other areas, including credit risk exposure, equity risk and duration. Diversification towards new asset classes has been a strong ongoing trend, but has changed in flavour: for instance, we see a significant slowdown in new entrants to corporate private debt, which was by far the most popular pre-pandemic portfolio addition, and an acceleration of new entrants for infrastructure. The Covid-19 phase has also seen a dramatic surge in focus on Environmental, Social and Governance considerations.”
The report also found that 80% of respondents were looking to increase their exposure to alternative investments over the following 18 months, a trend being led by the larger insurers.
While this was already a consistent trend, the report says the pandemic brought a clear shift in favour of adding equities, with 37% increasing their investments in this area. However, this approach appeared to be ‘softening going forwards’.
The authors added: “As for fixed income, 54% of insurers decreased exposure during the pandemic period—a considerable acceleration of the pre-pandemic trend (42% decreased) and becoming even stronger going forwards (61% expect to decrease). Life insurers are more likely than other types to be cutting fixed income allocations over the next 18 months (73%).”
