Insurers’ investment confidence continues to fall as focus on private assets and sustainability sharpens

Insurers’ confidence in achieving their expected returns has fallen for the second successive year, with only half optimistic they will meet their investment goals, Schroders Institutional Investor Study 2019 has found.

The study – which surveyed 156 insurers across 20 different locations globally encompassing $9.8 trillion in assets – identified that just 51% of insurers expect to meet their return expectations. This has decreased from 54% in 2018 and a markedly higher 61% in 2017.

This change reflects a more uncertain macroeconomic backdrop with insurers increasingly expecting politics and world events, as well as a global economic slowdown, to impact investment performance.

Q. What influence do you expect the following to have on your portfolio’s investment performance in the next 12 months?

Despite these challenges, 57% of insurers expect to achieve average investment returns of 5-9% annualised over the coming five years, the same proportion as a year ago, but still down on the 65% recorded in 2017. In fact, insurers were, on average, the least optimistic category of institutional investors surveyed.  

Furthermore, 70% of insurers were comfortable adopting new financial instruments or asset classes, up on 66% a year ago. This diversification trend is enforced by 36% expecting to increase their allocations to private assets by more than 5% over the next three years, with the need to diversify their portfolios and generate higher returns the key drivers behind this shift.

Q. How strongly do you agree or disagree with the following statements? (%strongly agree + agree)

Within private assets, private equity and infrastructure equity are predicted to generate the highest returns over the next 12 months. In addition, private debt and private equity are the asset classes insurers expect to allocate the most to over the coming three years.

Sustainability is also a rapidly growing focus for insurers with over three-quarters (78%) expecting it to play a bigger role in their portfolios over the next five years. Climate change is now seen as the most important engagement focus, ahead of corporate strategy and bribery and corruption, reflecting regulators’ greater emphasis on how insurers manage sustainability risks.  

Q. Please rank in order of importance the areas that you believe are important for investment managers and asset owners to engage on?

Gavin Ralston, Schroders’ Head of Insurance Asset Management, commented:

“Insurers can be forgiven for having a strong sense of déjà vu going into 2020. Many of the same geopolitical uncertainties from a year ago remain and there can be little surprise that this continues to eat into their investment confidence.

“It is however encouraging that, despite these challenges, insurers are not afraid of diversifying their investment portfolios. Private assets – in particular private equity and infrastructure equity – are increasingly in demand, with the added stimulus of better capital treatment in Europe for long term equity investments.

“Likewise, these survey results underline that a focus on sustainability is not a fad. It is here to stay for regulators and insurers, and asset managers need to take note. It is incumbent on them to work in partnership with their insurance clients to help them navigate this uncertain economic backdrop, while meeting their private assets and sustainable investing objectives.”

Schroders commissioned CoreData to conduct the third Institutional Investor Study to analyse the world’s largest investors’ key areas of focus and concern including the macroeconomic and geopolitical climate, return expectations, asset allocation and attitudes to private assets and sustainable investing.

The respondent pool represents a spectrum of institutions, including pension funds, insurance companies, sovereign wealth funds, endowments and foundations managing approximately $25.4 trillion in assets. The research was carried out in May 2019. The 650 institutional respondents were split as follows: 175 in North America, 250 in Europe, 175 in Asia-Pacific and 50 in Latin America. Respondents were sourced from 20 different locations.

For further information, please contact:

Estelle Bibby, Head of Media Relations

+44 20 7658 3431

estelle.bibby@Schroders.com

 

Andy Pearce, PR Manager

+44 20 7658 2203

andy.pearce@schroders.com

 

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