As the US-China trade talks go on, Kimberly Kim, head of BlackRock's financial institution's group for Asia-Pacific, said that Asian insurers, 54 percent of them, are 'disproportionately concerned' with asset volatility and weak economic growth because only 39 percent of insurers globally expect a recession before 2022.
BlackRock's new report states that macroeconomic risk concerns in the next few years affect the investment outlook in the region as the US-China trade issues continue with more strict regulatory requirements on capital coming into place as one of the reasons.
Kim verified that Asian-Pacific insurers are "disproportionately concerned with weak economic growth and asset volatility" unlike those in the US and Europe.
Kim pointed out that the sentiment in the region drastically changed from having the highest appetite to having the lowest due to regulatory capital requirements, macroeconomic growth, continuing US-China trade concerns and the high cost of hedging in some markets resulting to only 23 percent of Asian insurers willing to increase their exposures.
Despite these, Kim said the overall sentiment among insurers stays positive.
Kim said that insurers are confident that they are positioned appropriately despite lower rates and higher volatility.
However, Kim pointed out that compared to last year, there's greater caution and focus on enhancing portfolio resilience by diversifying.
Insurers are evolving their portfolios to balance a need for income with enhanced portfolio resilience, with evidence of continued interest in private markets while being conscious of liquidity and the complexities that come with it, Kim added.
Hong Kong and Singapore insurers are highly interested in fixed income holdings.
Around 60 percent of Hong Kong and Singapore insurers plan to increase their exposure to investment-grade credit.
Insurers, on average, are saying they intend to increase their exposure, over the next three years, to private market allocations from 6.6 percent of their portfolios to 8.5 percent with a conservative estimate of an additional US$200 billion going into the asset class.
Likewise, environmental, social and governance (ESG) bonds and green bonds are still a priority for insurers, with Latin America and the US giving top allocations.
Though 22 percent of Asian insurers intend to increase the size of their ESG bond holdings, they have been increasing sustainability considerations also into their investments.
Fifty-eight percent of Asian insurers made enhancements.
Globally, 78 percent of those surveyed said they are positive about the current investment cycle in spite of geopolitical and macroeconomic uncertainty.
BlackRock says insurers in the US and Europe are the most positive.