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BlackRock: Insurers Face Fixed Income Dilemma

BlackRock recently established a European Infrastructure Debt investment team in Europe to meet demand from insurers seeking long-dated and predictable income at attractive levels. In addition, BlackRock also expects increased inflows into areas such as opportunistic credit, real estate debt (senior and mezzanine), social housing, high-yielding bank loans and equity dividend strategies. Insurers are also expected to begin to look beyond high-yield bonds and find attractive opportunities in leveraged loans and collaterized loan obligations.

“Insurers may look to growth and higher investment returns in emerging markets in order to increase and diversify revenue,” said Mr. Lomas. In addition to emerging market sovereign hard currency debt, BlackRock expects demand for emerging market corporate debt and local currency denominated debt to increase.

BlackRock also expects insurers to increasingly implement their investment strategies through exchange traded funds (ETFs). For example, Mr. Lomas believes insurers in the developed world, seeking to diversify away from the historically low levels of domestic sovereign fixed income, will look to deploy assets in flexible credit oriented ETFs.

Mr. Lomas added: “The firm's success has always focused on having both the foresight to anticipate its clients’ changing needs and developing innovative product solutions to meet them. ETFs provide an efficient and effective manner for insurers to deploy cash or tactically allocate assets. For example, the inventory of emerging market fixed income is limited – which may reduce the effectiveness of investing through traditional means. ETFs can make this process more efficient. We’re eager to work with our clients to show them how to more strategically implement ETFs to their investment portfolios, and we’ll look to further innovate products that meet their unique investment and regulatory needs.”

Assets in fixed-income exchange traded products currently stand at $339bn, just 0.3% of the overall $98 trillion global bond market.*

“The outlook we are releasing today reflects BlackRock’s insight into the management of insurance assets globally and the firm’s commitment to supporting insurers that are seeking independent advice and solutions in the current low yield environment,” added Mr. Lomas.

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