Insurers have been adjusting their investment portfolios in response to the pandemic’s economic impact in a bid to improve returns, according to a study by consultancy bfinance.

The study examines data from 86 insurers in Australia and 19 other economies with combined assets under management in excess of $US5 trillion ($7.11 trillion).

About 49% say investment changes since March 2020 have been influenced by the pandemic and 73% say “yes” when asked if there is still scope to add risk to the investment side of the balance sheet.

Around 61% expect to enter unfamiliar asset classes in the next 18 months, with emerging market debt, private debt, private equity and infrastructure debt among the popular investment options they are considering.

61% plan to cut fixed income allocations and 74% expect an increase in portfolio illiquidity.

bfinance says insurance firms in Australia and across the globe have found it increasingly challenging to deliver appropriate investment outcomes to support the needs of their businesses.

Some of the well-established shifts of the pre-pandemic period such as the movement away from fixed income and towards “alternative” investment strategies and illiquid investments are observed continuing in the pandemic era, bfinance says in the study.

“In the hunt to improve returns, insurers are dialling up on risk exposures,” bfinance said.

The study found within the insurer community, there has been a massive increase in focus on environmental, social and governance (ESG) considerations.

About 71% integrate ESG factors into the investment process, up from 32% in March 2020, and 76% do negative screening/exclusions, up from 45%.

For nearly one third of insurers, the goal is to be “ahead of the curve on sustainable investing” while only 7% say ESG is a “low priority issue”.