Market outlook and survey findings
Insurance companies are facing significant price losses across their portfolios, particularly within long duration fixed income. On the horizon is the risk of a global recession, peaking fundamentals, persistent inflation, and energy crises, particularly in Europe.
On one hand, the increase in yields makes things more simple going forward – insurers don’t need to take the same level of risk to generate a reasonable level of income. On the other hand, the highly uncertain economic environment makes things more complicated.
We recently surveyed the insurance market globally to find out what their key concerns, challenges and opportunities are within their investment portfolios and how they plan to tackle these in 2023. With these findings in mind, we have produced what we believe should be the top considerations for insurers in 2023
Download the paper and listen to the podcast to learn more about the top considerations for insurers in 2023.
Discover the key findings from the 2022 global insurance investment survey.
Investment risk on the increase
Key findings
Action points
ESG part of the mainstream
Key findings
Action points
Private markets - the next great rotation?
Key findings
Action points
Dealing with complexity
Key findings
Action points
The return of quality high yield
2022 has seen rapid changes across financial markets as central bank policy has shifted from easing to tightening on the back of exit from the COVID-19 pandemic, the Russian invasion of Ukraine, and persistently high inflation. Given the major repricing of financial assets, it can be a tempting time to consider adding incremental risk to portfolios to take advantage of more attractive valuations. Although there are near-term opportunities in certain markets, at the time of writing this report in late 2022, we do not believe it is a prudent time to stretch risk levels to a meaningful degree.
Convergence of public and private markets
One of the key structural themes in capital markets over the last decade has been the increased use of private markets to secure capital. This is readily evident in the growing proportion of companies staying private for longer and the resulting decrease in relative supply of public equity markets.
Continued growth in alternatives
Insurers across various liabilities and size continue to allocate to alternatives to improve returns and grow surplus. Our recent insurance survey found that 67% of respondents currently invest in private markets, and 8% who do not currently invest in private markets plan to in the next twelve months. As a result, Alternatives have become a vital part of insurance company’s investment strategy.
Evolving governance models
Insurer investment portfolios have undoubtedly become more complex. Underlying this was a decade of financial repression and falling interest rates, but also a desire to generate more value and alignment with the investment portfolio and broader objective of growing enterprise value of the company. As a result, the level of sophistication and oversight required to manage portfolios has increased over time, resulting in challenges with a lack of resources, implementation, and operational complexities.
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Pace of Regulatory and Rating Agency Changes
Across the globe we are seeing significant activity from regulators and rating agencies regarding insurance investments and it is increasingly important for clients to stay abreast of the implications for their portfolios. We have outlined below some of the key issues emerging across various regions and rating frameworks.
Sustainable investment
Sustainable investment - whether concerning environmental, social, and governance (ESG) factors in decision-making, impact investment opportunities, or related considerations - continues to be a key issue across our insurance client base. For some insurers this is driven by a desire to be a leader in their industry, while others are preparing to respond to a higher level of disclosure requirements by rating agencies and regulators.
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