What is the greatest risk to insurers’ portfolios?

A latest world survey amongst professionals within the funding administration sector of life insurers, London Markets re/insurers, and funding managers supporting insurers, highlights inflation as a predominant threat, with a good portion of respondents having taken measures to mitigate it.

The examine, performed by Ortec Finance, discovered that 40% of respondents really feel the portfolios they handle are “very effectively” protected in opposition to inflation, whereas 55% consider they’re “fairly effectively” hedged.

To counteract inflation, the survey revealed that 79% of insurance coverage funding professionals elevated their allocation to inflation-linked bonds previously yr. Moreover, 54% reported an increase of their allocation to cash market accounts, and 47% boosted investments in oblique (listed) actual property. Round 38% have elevated their gold investments, and 21% have upped their infrastructure investments as a hedge in opposition to inflation.

Waiting for the subsequent 12 months, 75% of survey members anticipate an elevated allocation of inflation-linked bonds, 53% anticipate an increase in cash market accounts, and 51% foresee higher funding in gold.

The survey additionally famous funding developments in numerous asset courses over the previous and forthcoming yr:

• Inflation-linked bonds: 79% elevated allocation previously yr, with 75% planning to extend within the subsequent yr
• Cash market funds: 54% elevated allocation previously yr, and 53% intend to extend within the subsequent yr
• Oblique actual property: 47% elevated allocation previously yr, with 45% planning to extend within the subsequent yr
• Direct actual property, Gold, infrastructure, and different commodities additionally noticed various levels of elevated allocation

Regardless of these measures, 51% of the insurance coverage funding professionals surveyed expressed vital concern about the specter of stagflation, with one other 47% considerably involved.

Hamish Bailey, managing director UK and head of insurance coverage and funding, commented on the continued notion of inflation as a significant risk to portfolios, regardless of a fall in inflation charges.

“It’s clear that many have been proactive in taking steps to make sure they’re adequately hedged, and these are evolving by way of deliberate asset allocation for 2024,” Bailey stated. “Nevertheless, with rising costs and strain on financial progress, the specter of stagflation is actual, and that is clearly a priority for insurers. In these risky and difficult occasions, insurers want to observe the numerous dangers dealing with their funding portfolios and have examined methods in place for managing them.”

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