Asian insurers are more willing to take on greater portfolio risk in their quest for higher investment returns than insurers in other parts of the world, a global survey by BlackRock showed on Thursday.

And they are looking to do so by raising their allocations, most notably in fixed income and alternatives.

Fifty one percent of Asian insurers surveyed said they plan to increase their portfolio risk exposure over the next one to two years, compared with 47% globally, Kimberly Kim, head of BlackRock’s financial institutions group in Asia Pacific, told AsianInvestor.

“Taiwan and China scored the highest in terms of their intention to increase investment risk and topped the score in our survey,” she said.

Around 80% of Taiwanese insurers and 61% of Chinese insurers were prepared to raise portfolio risk, according to the survey.

BlackRock’s Global Insurance Report was conducted in partnership with the Economist Intelligence Unit. Of the 372 senior insurance executives surveyed across 27 countries, 30% came from Asia Pacific, 42% from Europe, and 20% from North America, with the rest coming from Latin America.

In line with global trends, she noted Asian insurers were looking to increase allocations across different asset classes, particularly in so-called alternatives such as real estate, infrastructure and private equity and in fixed income from government bonds to emerging market debt and bank loans.

OUTSOURCING INTEREST

In the case of alternatives, the challenge is how to take a more holistic approach when constructing a portfolio, she said: "Should they explore domestic markets or look overseas? If it’s overseas, should they look to the US, Europe or Asia?"

Many Asian insurers also lack the internal expertise to scale up their alternatives investment.

“From our discussions we find that a lack of in-house expertise is the number one reason to find external expertise in certain asset classes or investment strategies,” Kim said, adding that it also goes some way in explaining the kind of asset managers Asian insurers look for.

Kimberly Kim

 

Certainly, demand for outsourcing is higher in the case of alternatives, she said, adding that Asian companies are interested in all sorts of alternatives, including relatively newer forms of investment such as both infrastructure equity and debt.

"We have seen quite a bit of demand in certain parts of Asia especially for illiquid alternatives, with 37% of respondents expressing they plan to increase allocations," she said.

A growing penchant for outsourcing also forms part of a broader theme to improve investment efficiency, particularly in relation to private market assets, where insurers often lack in-house expertise -- something highlighted in the BlackRock survey.

Globally, approximately 35% of respondents said they fully outsourced the management of their private market holdings. Another 52% do so partially. 

In the case of private equity, 31.5% of respondents globally said they outsourced management of the portfolio completely, while another 57.5% said they outsourced part of their portfolios. Among respondents in Asia, the corresponding proportions were 31% and 61.9%.

While the reasons for outsourcing vary, 67% of global respondents said they were reluctant to add to their costs and risk diluting their profitability by building up their own in-house expertise in these assets. This was even more the case in Asia, where 70% of those surveyed stated this as the main reason for outsourcing.

Other reasons were lack of scale, cost savings and the ease with which a particular investment strategy was available externally. 

The demand for more outsourcing highlighted in the BlackRock report is borne out by the jump in Asian insurer assets managed by asset managers, as their appetite for overseas investments has grown.

Overall, regional insurer assets under management grew at an annualised rate of 7.4% between 2012 and end-2017, from $5.55 trillion to $7.93 trillion, data compiled by technology provider Broadridge shows.