How much risk will insurers take on in 2024?

A new global study conducted by Ortec Finance indicates a trend among insurers toward embracing greater risk in their investment strategies for 2024.

Surveying investment management professionals from life insurers, London market re/insurers, and investment managers catering to the insurance industry, the research found that over the last year, 51% of respondents observed an increase in the risk profile of the funds they manage.

Conversely, 41% perceived a decrease. Looking ahead, 59% of those surveyed anticipate a further increase in risk levels within the next 12 months, with 14% expecting a significant uptick, while 39% predict a decline.

Respondents foresee a shift in portfolio allocation, with a substantial 81% projecting an increase in their allocation to US equities and 80% expecting to raise their investment in investment-grade fixed income over the next 24 months.

Inflation emerged as the top concern among the surveyed professionals, with 72% marking it as a principal risk, followed by fears of a stock market correction (57%) and climate change (49%). Geopolitical instability was identified by 39% as a main risk, but only 7% included the possibility of a recession in their top three concerns.

Looking at specific risks for the coming year, the majority of those surveyed anticipate rises in credit risk (74%), currency risk (72%), and equity risk (68%). Additionally, 65% foresee an increase in interest rate risk, and 63% in liquidity risk facing insurers in 2024.

Hamish Bailey, managing director UK and head of insurance & investment at Ortec Finance, highlighted the dual outlook of insurers who are willing to embrace more risk in their investment portfolios while being mindful of the potential challenges.

“As they look to expand the range of asset classes they invest in and diversify their portfolios, enhanced scenario analysis, stress testing and monitoring can provide insights and help assess how they would be affected by various changing risk factors,” Bailey said.

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