The majority (83 per cent) of insurers and insurance asset managers believe the risk profiles of their investment portfolios will increase in the year ahead, with 20 per cent expecting a dramatic increase, research by Ortec Finance revealed.

The research found 36 per cent said risk profiles had increased in the past 12 months, 54 per cent said risk profiles had stayed the same in the past year and 10 per cent said risk profiles had decreased.

The majority (91 per cent) of respondents said risks facing their investment portfolio were currently within agreed risk parameters.

When asked about the biggest risk to the portfolios they manage, 55 per cent of respondents said long-term liquidity risk, 31 per cent believe it is short-term liquidity and 14 per cent said long-term liquidity and short-term liquidity are roughly equal as risks.

In terms of macroeconomic risks affecting their investment portfolios, respondents ranked the prospect of a recession as the top concern.

This was followed by a deterioration in liquidity conditions and inflation, while credit market volatility was ranked as the fourth largest risk.

Tariffs and potential trade wars were ranked by respondents as the next risk, with monetary loosening and deflation ranked after this.

Equity market volatility and geopolitical tensions ranked eighth and ninth among macroeconomic risks.

Ortec Finance UK managing director and head of insurance & investment, Hamish Bailey, said the study suggested a “shift in sentiment”, as 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,” Bailey explained.

“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.”

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