Asia-Pacific insurers grow more cautious about economic environment, risk appetite as US-China trade war rages on, BlackRock says
- Asian insurers ‘disproportionately concerned’ with weak economic growth and asset volatility, according to BlackRock’s Kimberly Kim
- Only 39 per cent of insurers globally expect a recession before 2022, according to report
Insurers in the Asia-Pacific region are growing more cautious about the investment outlook as concerns increase about macroeconomic risk in the next few years, as the US-China trade war continues to rage and stricter regulatory requirements on capital come into place, according to a new report by BlackRock, the world’s biggest asset manager.
Of the Asian insurers surveyed, 54 per cent said they were most concerned by financial market risk over the next two years as the biggest driver of change in the industry. That compared with 39 per cent of respondents globally.
Kimberly Kim, head of BlackRock’s financial institutions group for Asia-Pacific, said insurers in the region were “disproportionately concerned with weak economic growth and asset volatility” compared with their peers in the United States and Europe.
“Sentiment in [Asia-Pacific] took a rather dramatic turn. APAC went from having the highest appetite to add risk last year, to having the lowest appetite to add risk this year,” Kim said. “Of those reducing risk in APAC, concerns about regulatory capital requirements and macroeconomic growth were the leading considerations.”
Only 23 per cent of Asian insurers were willing to increase their exposures, according to the report.
The Global Insurance Report, in its eighth year, interviewed 360 senior executives in 22 countries in the insurance and reinsurance industry, with a combined estimated assets under management of US$16 trillion. Asia-Pacific insurers represented 28 per cent of this year’s responses.
Kim said changes to insurance regulations in the region, the continuing US-China trade war and the high cost of hedging in some markets were among the notable contributing factors to the changed outlook.
Despite these concerns, Kim said the overall sentiment among insurers “remains surprisingly positive”.
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“Insurers feel they are positioned appropriately despite lower rates and higher volatility,” Kim said. “Relative to last year, we do see greater caution and focus on enhancing portfolio resilience through diversification.”
Globally, 78 per cent of respondents said they remained positive about the current investment cycle despite geopolitical and macroeconomic uncertainty, with insurers in the US and Europe being the most positive, according to BlackRock. By comparison, only 66 per cent of insurers in Asia were positive about the current environment.
“This more muted optimism is probably a reflection of the region’s greater vulnerability to the risk of an escalating US-China trade [war],” the report said.
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Only 39 per cent of insurers globally expected a recession before 2022, according to the survey.
“In light of the macro backdrop, insurers appear to be evolving their portfolios to balance a need for income with enhanced portfolio resilience, evidenced by a continued interest in private markets, while mindful of liquidity and the complexities that come with it,” Kim said.
Asia-Pacific insurers favoured fixed income products and cash, with Hong Kong and Singapore expressing the highest interest in increasing their fixed income holdings, Kim said. About 60 per cent of Hong Kong and Singapore insurers said they planned to increase their exposure to investment grade credit.
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Private market allocations are coming into the mainstream globally, with insurers on average saying they intended to increase their exposure from 6.6 per cent of their portfolios to 8.5 per cent over the next three years, Kim said. A conservative estimate would equate to an additional US$200 billion going into the asset class in the next three years, she said.
Environmental, social and governance (ESG) bonds and green bonds also remain a priority for insurers, with the larger allocations intentions in Latin America and the US.
About 22 per cent of Asian insurers said they intended to increase the size of their ESG bond holdings, according to the survey. However, insurers have been increasing sustainability considerations into their investment process, with 58 per cent of Asian insurers saying they had made enhancements to the past year.
