Evening Brief – 04.11.24
Insurers Want Private Debt
Marsh McLennan divisions Mercer and Oliver Wyman have released their 2024 Global Insurance Survey, which provides insight into the investment and portfolio management strategies of more than 80 global insurance companies.
The survey revealed that insurers are increasingly focusing on private market investments, particularly private debt, as a major component of their portfolios, with 73% presently involved or expecting to enter private markets this year. Additionally, 39% of respondents intend to increase their holdings in private markets. Within private debt, 32% of insurers plan to increase their investments, up from 27% the previous year.
Despite the interest, key obstacles that prevent allocations from expanding are the high costs and complexity that are involved with the selection of managers and investment options for those already in the market.
“With elevated interest rates and fixed income volatility, as well as considerable uncertainty around inflation, many insurers are reevaluating their investment frameworks and assessing ways to put excess cash to work,” said Amit Popat, global head of financial institutions at Mercer.
Liquidity restrictions, a lack of resources to examine investment prospects, and the complexity of investment instruments are the most frequently stated obstacles for insurers that do not already have any allocations in the private market.
Another significant challenge is market volatility, which was cited by 61% of insurers as a serious issue for their investment strategy over the next year. Insurers have been compelled to reevaluate their strategies regarding investments in fixed income, with 60% considering the optimization of their core fixed income portfolios as a prime opportunity.
Additionally, the survey revealed a trend away from cash allocations in 2024. Only 7% of insurers intend to raise their cash holdings, while 27% are looking to decrease them. This modification comes at a time when 49% of insurers have reported having extra liquidity in their portfolios.
On the operational front, 61% of insurers saw navigating evolving regulatory requirements as a significant problem in 2024, in addition to data management concerns. The impact of accounting and regulatory pressures on investment decisions was also flagged as a major concern by 39% of insurers.
The survey also looked at the adoption of sustainable investing practices, revealing significant geographical disparities. Insurers in the UK, Europe, and Asia include more sustainability factors into their investing methods than their counterparts in the U.S. and Canada.