Insurers see the future

Hello. Happy New Year and warm wishes for a healthy 2021.

Welcome to our Global Insurance Webinar series, a three-part series to kick start this new year.

This new webinar is designed to complement our 9th Annual Global Insurance Report, which was published last October.

I am Charles Hatami, the Global Head of our Financial Institutions and the Financial Markets Advisory Group at BlackRock.

I’d like to start by thanking you for your partnership and engagement over the years, and importantly during this last year, a year which has obviously tested all of us. We value your trust and are committed to working with you to help deliver on your desired financial outcomes.

As in previous years, our 2020 Global Insurance Report represented over $24TRN of Assets Under Management, which represents two thirds of investable insurance assets and that drew on four dominant themes within the industry:

First, insurance companies’ focus on dynamic and flexible asset allocations will be highlighted by Peter Gailliot in our first webinar instalment. Peter who’s our FIG CIO will discuss how diversification within a whole portfolio approach can create resilience in what is globally now a low rate environment.

Second, Kunal Khara will highlight the extent to which the technological transformation of the industry, in all aspects of the insurance business from liabilities, assets management to distribution, is driving change across the industry for insurers.

Third, sustainability which, against the backdrop of the pandemic, has only accelerated in its global importance with insurance companies, will be presented by Jessica Tan in our final webinar instalment.

These considerations have encouraged insurance companies to fundamentally review their business models to ensure they are both robust and future proof, a final theme that emerged from our 2020 survey.

So what of the year ahead?

We are clearly expecting all of these themes to continue to play out in and some will accelerate in 2021.

We are also expecting new themes to gain in importance such as the rising inflation, as well as the already strong backdrop of consolidation across the global insurance industry which will continue apace.

We’d be honoured to support you through our global diversified platform which combines asset management, insurance solutions, technology and capital markets capabilities, and partner with you on these evolving challenges.

We hope to meet face-to-face sooner rather than later in 2021 and would like to thank everyone who took part in the survey.

We hope you enjoy my colleagues’ videos and this webinar series.

I look forward to speaking with you soon.

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Hello.  My name is Kunal Khara.  I'm the Global Head of Financial Institutions within the Aladdin Business and I'm really excited to talk to you about technology and its critical support of the insurance industry in the year 2020. 

As you all know, technology stood out as one of our overarching themes in the Global Insurance Report.  It's created a meaningful change in the way insurers operate across distribution, across product manufacturing, across data analysis, and ultimately into investment decision-making. 

The pandemic has also demonstrated that having sound technology for operational resilience, for good governance and controls, and to ultimately create a seamless operating environment has also been very, very important and we expect that these themes will continue over the next few years as insurers continue to leverage some of the benefits of this technology environment from 2020 into 2021 and beyond. 

First off, we found that insurers are leveraging technology a lot more to get as close as possible to the end consumer.  And this is happening in a couple of different ways.  Certainly, one to create direct policyholder engagement, but also more importantly, partnerships across the InsureTech space for example resulting in more distribution that is driven by technology and artificial intelligence. 

In addition, we found that insurance companies are even more careful and specific to incorporate local trends, recognising that again the world that's been created around us due to the pandemic is very, very focused on leveraging this technology to the end consumer and to get to wholesalers and distributors all over the world. 

If you now move to the investment landscape and the way insurers are now leveraging technology to ultimately create the right investment outcomes for themselves and their clients, there are four key themes we highlighted in our Global Insurance Report. 

First of all, technology and analytics drive strategic asset allocation and asset liability management. Second, technology to further equip the risk budgeting process and to focus on setting the right risk appetite. Third, technology analytics, ESG in sustainability, is especially an area where we know insurers are taking a leading position. And finally, technology that ultimately helps equip insurers to align investment and accounting data together and to produce that seamless single book of record with a single source of truth on the data side.

All of this has to be underpinned by a degree of resilience and portfolio flexibility, and in particular, we know that insurers are also enhancing their alternatives allocations.  This came through very clearly in the global insurance report.  As a result, we expect that these themes will endure in the technology evolution spectrum. 

We expect that there will be more and more work that will be done over the next few years in driving more decision-making that's tech and data enabled.  And we are very, very glad to continue to partner with you on your journey of tech evolution.  With that in mind, I look forward to continuing the engagement with all of you in the years to come.  And in the interim, to discuss these themes in more detail, I'd encourage you to please reach out to your relationship manager.  Thank you very much.

Hi, I'm Jessica Tan and I'm the Global Head of Corporate Strategy and Interim Head of Sustainable Investing for BlackRock. I'm really excited to have the opportunity today to share with you some insights on the way we've seen insurers adopt ESG factors in the way they invest and their overall investment philosophy.

Over the last year, we've seen clients across all segments and across the globe increase their focus and interest on sustainability. When the pandemic first took hold, we actually thought that the health crisis was going to divert attention away from climate and ESG. In fact, the opposite happened. We saw a huge reallocation of capital toward sustainable investing over the past year, and broader interest also increased. Over the last year, we saw historic net zero commitments from the EU, China, Japan, South Korea and, most recently, the US readopted the Paris Agreement. In all, we have 127 countries now signed up to a net zero commitment with 2,000 global climate laws, and we have over a thousand companies who have committed to some sort of net zero or climate commitment.

To take a step back, a net zero economy emits no more carbon dioxide than it removes from the atmosphere by 2050, which is a scientifically established threshold necessary to keep global warming well below 2 degrees Celsius. There's no company whose business model won't profoundly be affected by the transition to a net zero economy. This has a significant implication on our clients. Last year, from January to November, investors across mutual funds and ETFs alone globally invested 288 billion dollars in sustainable investments¹. That's nearly double what it was in 2019. And that trend certainly rings true with insurers. This past summer we conducted our Global Insurance Survey, which includes responses from 360 insurance executives that represent 24 trillion dollars of investible assets, or nearly two thirds of the global industry. And 78% of insurers actually said that they're accelerating their focus on ESG.

This increasing shift toward sustainable assets has resulted from a range of factors. One, we've seen improved sustainability data. Now, we know that there's still a long way to go, however, in the last year we saw greater company disclosure whether it was on climate through TCFD or others. We saw a rise of unstructured data across all E, S and G factors, and we've just seen more third-party research on the topics of climate and sustainability and relating that to portfolios and finance. Two, we've seen a broader range of sustainable investment products made more accessible to clients. This ranges from cash to private markets, from active to index. We've seen growth across screen strategies, raw ESG strategies, impact in thematics, and with more strategies tailored to specific client ESG goals or outcomes. And three, there's a growing belief about sustainability as the persistent driver of return. All of this is fueling a reallocation toward more sustainable companies that will continue to take place over many, many years. And we believe that investors who are on the forefront of that transition and who move quickly to take part of the reallocation are going to benefit.

Basically, we believe that the climate transition and this focus on ESG is going to present an historic investment opportunity. As you all know well, insurers have the added challenge of having to understand the implications of climate change and ESG on both sides of the balance sheet. And with insurers at the forefront of the battle against climate change through P&C and increasingly life and health underwriting activities, we also see an increased desire for comprehensive climate solutions and we expect significant research and solutions development in this area in the years to come.

In summary, we think it's particularly important and encouraging to see the insurance industry take a lead on this conversation, especially given the set, the scale of impact that you guys can have. It also matters increasingly from a reputational perspective. We saw that in the survey that we conducted earlier this year, with many insurers showing a degree of concern with clients, regulators, policyholders, employees and society, rightly in our view, demanding more.

This is only the start of the journey that we're all on. And here at BlackRock we want to play a pivotal role in accelerating that journey with you. So we really look forward to discussing how we can drive your ESG initiatives and impact further in 2021. 

¹ Sources: Simfund, Broadridge, GBI. Data as of November 2020. Closed-end funds, funds of funds excluded; Money Market funds included.