One-third of insurers are rethinking their strategy and making big changes.
As part of our annual institutional investor study, EQuilibrium, we surveyed nearly 200 insurance companies globally to uncover new insights into how they expect to achieve their investment objectives. What were this year’s three big takeaways? Strategic and tactical asset allocations are evolving, private markets continue to be in favor, and impact investing with balance sheet assets is here to stay.
1. Assets are on the move.
In our 2022 institutional investor survey, 67% of insurers globally told us markets beckoned a rethink of portfolio construction. This year we are seeing 33% take action.
What does this mean for portfolio allocation changes? There’s an impressive split between strategic and tactical changes: 31% of insurers globally report making foundational changes to strategic asset allocation (SAA) and 44% are making significant tactical shifts.
We also see quite a bit of variation in these portfolio changes by region. For example, in EMEA 38% of insurers are making foundational changes to their SAA, compared to 27% in APAC and 17% in North America.
In terms of the drivers behind these allocation changes, we are seeing the prolonged inflationary environment impact tactical moves and the continued evolution of sustainability and climate affect in longer-term strategic decisions.
2. Insurers revisit public fixed income and increase alternatives.
Public fixed income: As we near the end of the rate-hike cycle, over half of insurers globally (54%) are revisiting their public fixed income exposures. We are seeing North American insurers taking on more credit risk (39% plan to dial up their credit exposure in the next year) and lengthening the duration of their investment portfolios (50% plan to extend duration).
Private markets: The trend of assets flowing into private markets shows no signs of slowing down. Only 7% of North American insurers plan to decrease allocations to private investments over the next five years (21% of insurers plan to keep their private allocations as they have them currently and 76% plan to increase their allocations). Alternative asset classes in high demand for insurers globally included infrastructure, private credit/equity, and private placements.
3. Impact investing with balance sheet assets is here to stay.
Impact investing is on the rise with insurers. 82% of global insurers are currently considering—or planning to consider in the next 12 months—impact in investment decisions. This is compared to 74% of institutional investors overall; so we are really seeing insurers lead the way on impact. And to likely no one’s surprise, this response is largely being driven by EMEA insurers, followed by APAC and North American insurance companies.
Where are insurers making allocations to impact investments? For impact-focused insurers, 67% are either currently invested in energy innovations or planning to invest in the next two years. Similarly, 63% for infrastructure projects—timely examples of investments in this category includes things like battery storage, direct carbon capture and Commercial Property Assessed Clean Energy (C-PACE). We believe this trend is only going to continue as insurers evolve their SAAs to prioritize things like climate goals and impact key performance indicators (KPIs).
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