Insurers in focus

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Aviva Investors Real Assets Study 2023

Insurance companies constituted the largest channel in our survey, accounting for over one-third (38 per cent) of organisations polled. Their use of real assets was consistent with the broader survey population, with one-half of insurers currently maintaining a sub-ten per cent allocation and one-fifth allocating over 20 per cent. 

However, we found clear regional biases beneath the headline numbers. European insurers maintain bigger weightings — 57 per cent have ten per cent-plus allocations and almost one-quarter (23 per cent) have exposures over 20 per cent. By contrast, North American insurers veer toward smaller weightings – 60 percent hold less than ten per cent in real assets.

Inflation-matching becoming more important

Diversification is the biggest driver of insurers’ allocation to real assets, with over half (54 per cent) citing it as a primary reason for their exposure. More strikingly, the need for inflation-linked income has grown sharply, from 31 per cent three years ago to 51 per cent today, reflecting the macro environment.

Real assets look set to enjoy increased demand from the insurance channel. Almost one-half (47 per cent) expected to raise their real assets allocation by up to ten per cent in the next 24 months, while over one-fifth (22 per cent) anticipated a more meaningful ten per cent-plus increase. Regionally, insurers in Asia and Europe appeared more inclined to raise their exposure significantly in the next two years: 34 per cent of Asian insurers and 23 per cent of European insurers expect to increase weightings by over ten per cent, versus just five per cent of North American insurers.

Real estate equity remains top

Turning to the popularity of individual strategies, real estate equity was the clearly preferred approach, with a 28 per cent average allocation of all insurers polled. Regionally, we saw a skew in real estate equity exposure to North American insurers (38 per cent) versus 26 per cent in Europe and 24 per cent in the Asia Pacific region.

Multi-asset pooled funds were the preferred method for insurers across all regions to invest in real assets. They were favoured by one-half (50 per cent) of North American insurers, a cohort that saw more limited use for thematic pooled funds (five per cent) than European (26 per cent) and Asian (25 per cent) investors. Our insurance cohort foresaw greater appetite for multi-asset pooled funds and impact pooled funds with a specific ESG goal over the next year, although North American respondents registered less interest in impact funds.

Risk management needs partly underpin widespread ESG commitment

Turning to attitudes to responsible investment, Asian insurers (75 per cent) were most inclined to state that their organisation has a responsibility to invest sustainably; European (65 per cent) and North American insurers (64 per cent) showed comparable belief levels. Respondents pointed to risk management (62 per cent), alignment with corporate values and board pressure (56 per cent) and increasing evidence of improved financial performance as the main reasons to allocate to sustainable real assets.

In common with our broader survey, around one-half of insurers reported that ESG and sustainability factors were one of several factors considered when assessing real assets opportunities. Regional variations were evident, however. Almost one-third (32 per cent) of European insurers labelled ESG/sustainability as a “critical and deciding” factor. At the other end of the spectrum, 17 per cent of North American insurers do not consider ESG factors when allocating to real assets, against just two per cent of European insurers. 

Financial returns first

Across all regions, insurers reported a clear preference for strategies that prioritise financial returns while integrating ESG factors (76 per cent). Strategies that focus on creating positive social value also drew support (52 per cent), as well as funds with a positive, measurable impact against a specified ESG objective (51 per cent).

In line with the findings of our wider survey, insurers do not wish to jettison financial goals for the pursuit of principles and positive impacts. Eighty per cent of insurers deemed proven investment performance to be important when selecting an asset manager for a sustainable real assets mandate, with North American investors setting most store by return records. The ability to evidence impact and risks (73 per cent) was also a key consideration. 

Satisfaction levels with the performance of sustainable real asset managers was in line with our wider survey at 78 per cent. However, the ability of asset managers to evidence their ESG impacts was seen as less clear cut. A more modest 63 per cent of all insurers and only 58 per cent of North American insurers were satisfied on this front. 

Renewable infrastructure in demand

Reviewing specific sustainable real asset approaches, renewable infrastructure looks set to be the source of most interest from the insurance sector, with 41 per cent planning on adding to their existing exposure. Future demand in renewable infrastructure was greatest among Asian insurers (50 per cent). 

Narrowing the ESG focus to social investments, our insurance respondents picked out social infrastructure projects (71 per cent) and social housing (70 per cent) as the most appealing ways to deliver positive impacts for society.

North American insurers less persuaded by the net-zero cause

Insurers reported a slightly higher commitment to net-zero carbon emission targets than our wider survey cohort. Regional variations included one-third of North American insurers (33 per cent) reporting they have not made a net-zero commitment and have no plans to do so, significantly higher than Asian (19 per cent) and European insurers (14 per cent). 

Greenwashing biggest risk in sustainable real assets investment

Turning to the challenges associated with sustainable real asset investment, almost one-half (47 per cent) of all insurers identified the threat of greenwashing, making it the biggest perceived risk ; European insurers (57 per cent) were most sensitive to this issue. The demands posed in evidencing or measuring positive impacts (42 per cent) featured as the next most prominent risk. Meanwhile, 64 per cent of North American insurers were far more concerned about unsatisfactory performance than their Asian (39 per cent) and European counterparts (26 per cent). 

Among insurers in all regions, historical or sustained underperformance was the most popular reason (42 per cent) given for the rejection of divestment of real assets investment opportunities. ESG considerations are now deeply rooted among insurers, but meeting investment goals remains key across the sector.