How can insurers combat inflation, which still reamins pretty high? Here’s some research FYI;
A new global study among investment management professionals in Life Insurers, London Markets (re)insurers and investment managers who support insurers, reveals they see inflation as the biggest risk they face, and they have taken steps to address this. Overall, 40% of survey respondents believe the portfolios they help to manage are ‘very well’ hedged against inflation, and 55% say they are ‘quite well’ hedged.
The study, from Ortec Finance, the leading global provider of risk and return management solutions for insurers and other financial services companies, reveals that to help hedge against inflation, 79% of the insurance investment professionals interviewed say they have increased their allocation to inflation linked bonds over the past 12 months.
Furthermore, 54% say they have increased their allocation to money market accounts and 47% have invested more in Indirect (listed) Real Estate. Nearly two out of five (38%) and one in five (21%) say the funds they help to manage have increased their allocation to gold and infrastructure respectively, to help hedge against inflation.
In terms of what action survey respondents expect the funds they help manage will take over the next 12 months to hedge inflation, 75% expect them to increase their allocation to inflation linked bonds, followed by 53% who expect an increase in allocation to money market accounts, and 51% who anticipate more investment into gold.
Despite taking these steps, with inflation remaining above target and pressure on economic growth, 51% of the insurance investment professionals interviewed say they are very concerned about the threat of stagflation, and another 47% say they are quite concerned.
Hamish Bailey, Managing Director UK, and Head of Insurance & Investment said: “Although inflation is falling, our survey shows that investors still see it as a major threat to their portfolios. It is clear that many have been proactive in taking steps to ensure they are adequately hedged, and these are evolving in terms of planned asset allocation for 2024.
However, with rising prices and pressure on economic growth, the threat of stagflation is real, and this is clearly a concern for insurers.”
“In these volatile and challenging times, insurers need to monitor the many risks facing their investment portfolios and have tested strategies in place for managing them.”
Ortec Finance provides insurers with a range of services to help them confront challenges like complex liabilities, low yields, increasing investment performance analysis demands, or to assess climate change related risks and opportunities.
Specific services Ortec Finance provides to insurers are around asset liability management, asset allocation, risk management, economic scenario testing and performance measurement & attribution. For further information visit https://www.ortecfinance.com/en/industries/insurance-companies
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