Huge majority of insurance executives see climate as key investment risk

A BlackRock study has found that 95% of (re)insurance executives are concerned climate risk will have a significant impact on portfolio construction over the next two years.

According to Reinsurance News, the findings of BlackRock’s tenth annual Global Insurance Report follow an ‘unprecedented’ year of natural disasters and reflect the perspective of an industry that is directly exposed to the physical risks presented by climate change.

The study highlighted that (re)insurers that represent $27trn in assets and prioritising sustainable investment, technology transformation and diversification to higher-yielding assets as the concerns around climate change become greater.

The dominant themes in the 2021 report were found to be the growing impact of sustainability, the requirement to diversify portfolios into higher yielding asset classes and the drive to digitise businesses.

Around half of the 362 respondents in the study stated their reason for reallocating existing assets to sustainable investments is the due to the ability of these investments to generate better risk adjusted performance.

While geopolitical risk maintained its top spot as the main concern for insurers, environmental risk is now significantly seen as a much more serious threat to their company’s investment strategy – with over one in three respondents stating it was a potential headwind.

Sustainability is also look insurers to change their outlook on investment opportunities, with the BlackRock study finding that nearly half of respondents have turned down an investment opportunity over the past year due to ESG concerns. The need to diversify into higher yielding assets was also a key dominant theme in the study.

Speeding up digital transformation was another key priority for insurers, with nearly two thirds of insurers stating they are looking to bolster spending on technology over the next two years.

BlackRock global head of Financial Institutions and Financial Markets Advisory Charles Hatami said, “An overwhelming majority of insurers view climate risk as investment risk and are positioning portfolios to mitigate the risks and capitalize on the transformational opportunities presented by the transition to a net-zero economy. Insurers’ growing focus on sustainability should be a clarion call for the investment industry.”

BlackRock head of Americas Financial Institutions Daniel Dunay added, “In the decade since we have launched our Global Insurance Report, there has been an industry-wide transformation in how technology, sustainability, and regulatory complexities together impact insurers’ investment priorities. A comprehensive and transparent view of dynamic portfolio risk, particularly risk associated with climate change, is not just a competitive edge for insurers – it’s a necessity.”

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