Global insurers target increased allocations to direct lending/multi-alternatives

Written by Adam Cadle

27/09/2023

Sixty per cent of global insurers are planning to increase investment allocations to direct lending, and 57% to multi-alternatives within the private market space, according to BlackRock’s 12th annual Global Insurance Report.

By contrast, they expect to decrease allocations to both real estate debt and equity, as well as to traditional private equity.

Insurers surveyed for the report said increasing allocations to private markets is not without challenges, with rising defaults in alternative funds chosen by 45% as the area they believe further financial cracks are most likely to occur.

On the issue of sustainability, 62% of respondents see opportunities in clean energy infrastructure, 46% in green real estate, and 42% in core infrastructure. However, challenges to implementation exist, and 54% cited market volatility as the biggest hurdle.

Inflation remains front of mind for insurers, with 71% of respondents selecting it as the biggest economic surprise for the second year in a row. Recession risk, chosen by 59%, was the most selected macroeconomic concern. Over half of insurers (55%) globally believe that further financial cracks are most likely to occur in the banking sector, indicating concerns over the stability and health of financial institutions – this rises to 77% for North American respondents. In APAC, 55% of respondents cite concerns over residential real estate.

Furthermore, almost half (47%) of respondents globally cite risk management as a driver of increased technology investments over the next two years. In addition, 47% of insurers are considering technology that increases operational efficiency and reduces cost. Integration of climate risk (38%) and compliance with regulatory and reporting requirements (45%) are also cited as considerations for technology solutions. When asked where technology can add value to their strategic asset allocation, insurers report workflow automation (45%), liability integration (42%), and modelling of alternatives in SAA (35%) as areas of focus.

Olivier van Eyseren, head of BlackRock’s Financial Institutions Group, EMEA, said: “Despite the challenge ahead for insurers as they navigate the new investment landscape, responses to our survey highlight the opportunities available in both public and private markets. In order to take advantage of these, insurers are considering a flexible investment approach and robust risk management framework, enabled by technology.”

This year’s survey conducted in June-July 2023 encapsulates the views of 378 senior industry executives in 27 markets. Taken together these companies represent investable assets of approximately US$29trn.

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