Pandemic sees ‘major shift’ in insurers’ investment portfolios

Research conducted by independent investment consultancy bfinance – through almost 90 insurers across 20 countries including Australia – found a “major shift” in ESG approaches, asset class exposures and risk profiles.

The pressure to deliver appropriate investment outcomes has driven innovation in the insurance sector including the acceleration of diversification away from fixed income and towards alternative strategies, particularly through the pandemic, while more have turned away from the credit risk lever to the equity risk lever.

Sixty-one per cent of the respondents in the study expect that over the next 18 months they will enter unfamiliar asset classes such as emerging market debt and private debt, while 61 per cent plan to cut fixed-income allocations and 59 per cent will make plans to increase ESG headcount.

A focus on ESG in the insurance sector has continued to rapidly grow also, with 71 per cent of insurers now integrating ESG factors in the investment process (up from 32 per cent in March 2020) and 76 per cent now do negative screenings and/or exclusions (up from 45 per cent last year).

“Insurers in Australia and across the globe have been innovating to improve investment outcomes against a challenging macroeconomic backdrop,” bfinance Australia’s senior director, client consulting, Frithjof van Zyp said.

“Respondents include insurers in Australia and the results confirm a continued focus on ESG, movement away from fixed income towards ‘alternative’ investment strategies, and the increased use of external managers.

“These trends are very much in line with our experience supporting Australian based insurers.”

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.