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Asian Insurers: Adapting investment strategies to a changing world

Friday, November 01, 2013
Opalesque Industry Update - Opalesque Industry Update - Insurance companies globally are adopting new ways of thinking about their industry, as the markets in which they operate see significant long-term economic and regulatory changes, not to mention near-term volatility. BlackRock commissioned the Economist Intelligence Unit to survey more than 200 insurers around the world in May and July to find out more about the trends that are driving widespread change for our insurance clients, and what challenges they face in adapting their investment strategies.

In addition to having case studies based on in-depth interviews with global insurers and perspectives from BlackRock investment specialists, the survey results included 40 insurers from Asia Pacific, including China, Korea, Malaysia, the Philippines, Singapore and Taiwan.

Asian insurers are affected by the same market trends as their global counterparts, but their businesses are influenced by different domestic regulatory, cultural and economic factors. The summary below based on the global survey results reveals how actively Asian insurers have been preparing for change in their businesses, and indeed in several key respects, how they differ from insurance firms in other regions.

  • Focused on Long-term Change, Cost of Capital: Similar to their global counterparts, a significant majority of Asian insurers said change within their businesses is needed to produce adequate shareholder returns in the next three years. However, one of the primary drivers of change in Asia has been the increasing cost of capital, unlike other parts of the world that cited low investment yields. Nevertheless, the need to generate higher absolute returns is present in Asia.
  • Demand for Higher Yielding, Less Liquid Assets: Low rates are driving the majority of Asian insurers to increase exposure to high yield debt and allocating more to less liquid assets. Compared with almost every other insurer in the survey, firms in China, Korea and Taiwan indicated the strongest demand for hedge fund and real estate strategies.

  • Taking Action in the Near Term: Not only are Asian insurers ready to make strategic long-term changes to their investment strategies, they are also more willing than firms in the West to take near-term action tactically in the face of evolving market risks, such as the tapering of central bank asset purchases.

  • Increasing Use of ETFs: Changing markets and regulations are also driving insurers to explore new tools such as ETFs. 74% of Asian firms said they will likely increase their use of ETFs over the next three years and a majority acknowledged the need to learn more about using the instruments as part of an investment strategy.

  • Seeking Help on Risk Management: Asian insurers strongly believe that regulations are making them more risk averse and do not feel well-prepared, particularly in China and Southeast Asia.


PD

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