Insurers brace for increased investment risks in 2024

Insurers expect to take on more risks in 2024 when it comes to their investment portfolios, according new research by business management consultancy Ortec Finance, published on 14 February 2024.

The study, which conducted 100 interviews over the past 12 months, showed that 51% of those surveyed believed the risk profile of the funds they help to manage has increased, compared to 41% who think it has fallen.

For the coming year specifically, 59% of respondents expect a further increase in their funds’ risk profile – 14% foresee a significant increase, while 39% anticipate a decrease.

Hamish Bailey, UK managing director and head of insurance and investment at Ortec Finance, said: “Our research shows [that] many insurers are prepared to take on more risk when it comes to their investment portfolios, but they are also acutely aware of the challenges in doing so.

Risks

When choosing the primary risks insurers confront in their investments, 72% identified inflation as a top concern, while 57% pointed to a potential stock market correction as a key risk and 49% highlighting climate change.

Geopolitical instability was selected by 39% of respondents as a main investment risk, while only 7% thought a recession posed a specific challenge.

Upcoming risks

In 2024, specific risks facing insurers when managing their investment portfolios include credit risk (74%), currency risk (72%), equity risk (68%), interest rate risk (65%) and liquidity risk (63%), according to respondents

“As [insurers] 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,” said Bailey.

Ortec Finance’s research polled investment management professionals with expertise in life insurance, the London market and reinsurance, as well as investment managers that support insurers.