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Insurance CIOs say alternative investments are “essential”

SurveyThree-quarters of 200 chief investment officers at insurance companies say they are struggling to make returns and are increasingly looking towards alternative investments.

Many of them (66%) said alternative investments are “essential” in order to diversify investment due to the low-yield environment since the financial crisis.

Private debt and real assets are on menus - but barriers to entry remain and 97% of the CIOs said regulations were stopping them from investing in higher risk, illiquid assets.

The research, commissioned by Natixis Investment Managers (NIM), found more insurers are turning to specialist managers for private markets investment.

NIM said that due to increasing liabilities and the “widening of the duration mismatch”, insurers are willing to take on more liquidity risk in pursuit of higher yields, including in over half of cases who said they’d use alternatives as a fixed income replacement.

“Insurers have been squeezed by the low-yield environment over the last decade. The likes of private debt, private equity and other alternative investments provide a potential fix to underwhelming returns in the bond market, where insurers have traditionally turned to in the hope of finding stable returns to match their liabilities,” said James Hughes, global head of dynamic solutions at NIM.

Nearly all (90%) of insurance investment teams said regulations kept them from investing in these asset classes as, among other reasons, regulatory capital requirements meant a natural portfolio orientation towards low-yielding fixed income.

The survey found that insurance executives say the main reasons they don’t use more alternatives in their portfolio were (from most to least) complexity, investment restrictions within their organisation, fees, regulatory constraints, and liquidity issues.

Seven in ten (72%) of survey respondents outsourced some of their portfolios, with 10% of insurers delegating their entire portfolio to an outside firm.

On average, insurance investors outsource nearly half (48%) of their portfolio. 

*How much do insurers invest in UK government bonds?

*Read our 2019 insurance roundtable here.

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