Evening Brief – 01.30.24
Most Insurers Embrace Risk
Over half (62%) of U.S. insurers said they are willing to take more investment risk in 2024, even with concerns rising about the election, fiscal/ monetary policy, inflation and volatility, according to a survey by insurance asset management firm Conning.
Risk projections generally rose with the insurer’s asset base, although firms with $5 billion to $10 billion in assets agreed with the sentiment.
At the same time, organizations that outsource asset management had lower forecasts for increased risk in their portfolios (57%) than firms that manage assets in-house (68%), the survey found.
“Years of historically low interest rates demanded that insurers consider unfamiliar asset categories to help improve portfolio yields,” said Matt Reilly, Conning head of insurance solutions and co-author of the report.
While inflation remains the biggest concern for insurers for the next two to three years, insurers have signaled that they will further embrace risk.
“The increase in rates has helped make those more traditional investments appealing again. While many insurers appear poised to take advantage of those yields, they also remain committed to adding to less traditional assets such as real estate, private credit and private equity,” Reilly added.
Overall, 51% said their portfolios would consist of at least 20% in private assets in two years, including private equity (61%), private credit and private placements (56%), and real assets including real estate (52%) and infrastructure (48%).
The influence of artificial intelligence (AI) was ranked sixth among risk factors, with ethical issues at the top. Other issues include a lack of human control, unanticipated market shifts, cybersecurity and data privacy, and data quality and bias.
Nonetheless, 89% of insurance professionals believe that the benefits of incorporating AI in the investment process exceed the risks.
The survey found that three-quarters of respondents are already utilizing or testing AI and machine learning in investment-related tasks such as investment research, portfolio management, investment accounting, and trading.
Conning’s survey was completed by 300 investment decision makers at US insurance companies in November 2023.