Eight in ten insurers say they are actively considering increasing their allocation to alternative strategies as they look for sources of additional yield, according to new research.
Sponsored by State Street’s study and conducted jointly with The Economist Intelligence Unit, the study—“Facing the Future: Blueprint for Growth”—surveyed more than 300 insurance executives globally and focused on the key industry issues and opportunities facing the insurance industry and their preparedness in meeting those challenges.
According to the report, more than 80% of insurers feel that adapting to evolving regulation represents a challenge. Only 17% view the regulatory environment as not posing a challenge at all.
Ninety-three percent see restructuring product offerings to bring new, innovative products to market quickly as a challenge.
“The new normal of ultra-low interest rates is putting pressure on margins and evolving regulation is having a fundamental impact on operating models,” says Joe Antonellis, vice chairman of State Street. “While speed of execution is paramount, many insurance companies are left with operational roadblocks and dependencies — partly as a legacy of having expanded through years of mergers and acquisitions.”
More than 8 in 10 (82 percent) insurance leaders say that effectively allocating capital to the most business critical priorities presents a challenge. Nearly half (49%) are prioritizing allocations to alternative strategies for action within the next 12 months. And 79% of insurers report that investing in more complex asset classes is a challenge for their firm.
Despite the risks and challenges the sector is facing, there is optimism. The State Street study finds that insurance firms are confident in their outlook, with 42 percent saying that insurers’ profitability will increase over the next five
Insurers are taking immediate action to recalibrate products for the current macroeconomic environment, with 55 percent saying that they are looking at re-pricing new business to adapt to market conditions, including low interest rates, within the next 12 months.