Insurance companies expect to increase their asset allocation to passive, active and factor-based strategies, research shows.
A Clear Path Analysis survey of UK and European insurers found 16% of insurers expect to increase their allocation to passive management strategies and 15% to active management.
But “of most interest” were the 26% who foresee themselves increasing allocations to factor-based strategies, “in a sign that insurers are ready to embrace innovative investment structures to generate outperformance over liabilities”, Clear Path said.
The finding comes against a background of concern that insurers have about the impact of higher interest rates on long-term debt holdings.
The survey – carried out in conjunction with Invesco, Schroders and Aon – covered 96 insurance professionals.
Another finding was that “despite widespread talk” about the growing role of private market investments in insurers’ portfolios, illiquid assets such as private debt, infrastructure and private equity present “very real challenges” and remain very small, with only private equity exceeding a 5% allocation.
The research quotes Lewis Webber, a head of division within the insurance directorate of the UK’s Prudential Regulation Authority, giving the regulator's viewpoint on the trend towards alternative and illiquid investing and capital treatment policies.
“As well as boosting returns through alternative illiquid investments, survey evidence suggests that insurers are also looking to strip out costs and improve underwriting performance to boost their profitability.
“A rigorous approach to selecting, assessing and managing illiquid assets is therefore of vital importance, both to firms themselves and from a wider financial stability standpoint.”
The ‘Insurance Asset Management – Industry Insight Survey 2017’ also found that global equities will see an 11.5% increase in allocation, while domestic and US equities were out of favour and will see reductions of 7.3% and 6.2%, respectively. Clear Path said this indicated insurers’ expectations that emerging markets were a driver for global growth.
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