In today's investment landscape, insurers are increasingly looking outside of traditional allocations to improve portfolio returns and returns on capital.
Navigating periods of higher uncertainty and volatility in the public markets has become the norm for many investors as the pandemic rumbles on, and both old and new worries move in and out of focus.
Regardless of the prevailing market and macro backdrop, for many investors their long-term investment objectives remain unchanged. We believe there continues to be a number of allocation opportunities spanning the public and private markets that are highly suitable for insurance balance sheets – helping insurers meet key needs and balance a range of unique requirements, while having the flexibility to invest in those areas of the market that offer good value.
The low yield environment is encouraging insurers to cast the net wider, beyond traditional fixed income asset classes and cash holdings, and optimise existing investment portfolios by making assets work harder to deliver against investment targets or by incorporating more exotic flavours of credit into their portfolios. Insurance investors are also considering the benefits of putting their capital to work in less liquid markets, like private debt, in the ongoing search for investment returns to meet long-term liabilities and add diversification of risk.
In this paper, we look at four portfolio allocation themes that look set to remain high on the agenda for insurance investors in 2022 and beyond:
In addition to these portfolio allocation approaches, we believe increased market uncertainty reinforces the importance of credit diversification and dynamically positioning portfolios for change – whatever shape or form 'change' may present itself over investment horizons – while ensuring alignment with long-term investment objectives. Therefore, consistent themes such as portfolio resilience and ESG and sustainability remain hugely important and will continue to have implications for insurance portfolios going forward.
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