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May 2022

Ninety-five percent of global insurers believe climate risk is investment risk

Source: Middle East Insurance Review | Jan 2022

Insurers are increasingly concerned about the implications of climate risk, with 95% confirming it will have a significant impact on portfolio construction over the next two years according to BlackRock’s 10th annual Global Insurance Report.
 
The findings come following an unprecedented year of natural disasters, reflecting the perspective of an industry that is directly exposed to physical risks presented by climate change.
 
The study included 362 insurance company executives across 26 markets on their investment intentions and business priorities for the year ahead. The participating firms represent $27tn in investable assets.
 
The study revealed that growing impact of sustainability, the requirement to diversify portfolios into higher yielding asset classes and the drive to digitise businesses are the dominant themes for insurers this year. Insurers’ growing focus on sustainability should be a clarion call for the investment industry.
 
Half of respondents in the study indicated their reason for reallocating existing assets to sustainable investments is the ability of these investments to generate better risk adjusted performance.
 
While geopolitical risk remains the top concern for insurers, environmental risk is now considered a serious threat to their firm’s investment strategy, with more than one in three respondents citing it as a potential headwind.
 
The findings also highlighted that insurers continue to embed sustainability into their investment processes and strategies - nearly half of respondents confirmed they have turned down an investment opportunity over the past 12 months due to ESG concerns.
 
About 60% of insurers expect to increase their investment risk exposure over the next two years. This represents the highest level since BlackRock started tracking this information in 2015. However, this increase appears to be out of necessity, as the ongoing low interest rate regime. M 
 
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