Recession and the possibility of liquidity conditions deteriorating are the biggest macroeconomic risks
A new global study* among insurance investment managers shows they expect the risk profiles of their investment portfolios to increase over the next 12 months, despite being relatively cautious over the past year.
The majority (83%) of insurers and insurance asset managers believe risk profiles will increase in the year ahead, with 20% expecting a dramatic increase.
The study from Ortec Finance, the leading global provider of risk and return management solutions for insurers and other financial services companies, which polled investment managers responsible for $10.48 trillion assets under management, found just 36% said risk profiles had increased in the past 12 months.
More than half (54%) said risk profiles had stayed the same in the past year while 10% said risk profiles had decreased. The vast majority (91%) questioned said risks facing their investment portfolio were currently within agreed risk parameters.
Long-term liquidity risk is seen as the biggest risk to the portfolios they manage by 55%, while 31% believe it is short-term liquidity with a further 14% saying long-term liquidity and short-term liquidity are roughly equal as risks.
They rank the prospect of a recession as the biggest macroeconomic risk their investment portfolios face, ahead of a deterioration in liquidity conditions, and inflation ranked as the third biggest risk.
Credit market volatility is seen as the fourth biggest risk ahead of tariffs and the prospect of a trade war with monetary loosening and deflation ranked as the next biggest risks. Equity market volatility and geopolitical tensions are rated as the eighth and ninth biggest macroeconomic risks.
Hamish Bailey, Managing Director UK, and Head of Insurance & Investment said: “The study suggests a shift in sentiment. Following a period of relative caution, insurers are expecting to increase their investment risk profiles over the next 12 months.
“What we’re hearing from insurers is an expectation to embrace more risk, despite identifying recession and liquidity as the most significant concerns. This suggests that both insurers and asset managers perceive these risks as having a relatively low probability of materialising. In this environment, tools like scenario analysis and balance sheet simulation are critical to making insightful, forward-looking assessments.
“Ortec Finance supports insurers and asset managers by providing advanced scenario analysis, balance sheet simulation, and portfolio optimisation tools that take account of dynamic asset/liability interactions, liquidity and solvency constraints and
Discussion about this post