Insurers are increasingly worried that their investments will not achieve desired returns amid rising equity market volatility and risk, a global survey has found.
30 NOV 2018 | CHRIS SEEKINGS
After surveying 157 insurance investors representing $10trn (£7.8trn) in assets, Schroders found that politics and world events are seen as the biggest threat to portfolio performance.
Two-fifths expect average annual returns to be less than 5% over the next five years - a sharp increase on the 22% that said the same a year ago.
Meanwhile, confidence in achieving their desired returns has slipped from 61% to 54%, with insurers selling 19% of their portfolios on average, up from 13% last year.
Schroders global head of insurance asset management, Paul Forshaw, said the "great run" that global markets have enjoyed in recent years could be coming to an end.
"The survey confirms the importance of asset managers having insurance-specific investment expertise to deliver the actively managed tailored solutions required," he added.
In terms of specific investment challenges, equity market volatility, interest rate risk and credit defaults were the three main risks highlighted by the respondents.
They expect to increase private asset allocations from 9% to 11% on average over the next 12 months, with diversification and better risk management the key motivations.
Improved risk-managed investment solutions were the top innovation desired by the insurers, with 62% hoping to see more over the next 12 months.
It was also found that almost three-quarters of insurers' assets are currently actively managed.
In addition, 73% expect sustainable investing to become more important in the next five years, compared with 21% that predict no change and 6% who think it will be less prominent.
"Sustainability is coming sharply into focus as a feature of our insurance clients' investment requirements," Forshaw continued.
"Insurers are increasingly looking at bespoke risk-managed solutions and diversifying private assets in order to generate the returns they require with acceptable risk."