Insurance companies are facing significant price losses across their portfolios, particularly within long duration fixed income. On the horizon is the risk of a global recession, peaking fundamentals, persistent inflation, and energy crises, particularly in Europe.
On one hand, the increase in yields makes things more simple going forward – insurers don’t need to take the same level of risk to generate a reasonable level of income. On the other hand, the highly uncertain economic environment makes things more complicated.
We recently surveyed the insurance market globally to find out what their key concerns, challenges and opportunities are within their investment portfolios and how they plan to tackle these in 2023. With these findings in mind, we have produced what we believe should be the top considerations for insurers in 2023
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Four key findings from our 2022 global insurers investment survey
- 48% plan to increase investment risk within their portfolio.
- 43% cite the use of illiquidity as a top-three opportunity for the next 12 months.
- Re-optimize your fixed income holdings and allocations in light of higher interest rates and inflation. It may be worth considering flexible options such as absolute-return fixed income or multi-asset credit solutions.
- Investigate your liquidity position to assess whether you can take more long-term positions to capture the diversification, downside protection and inflation-protection benefits of illiquid assets.
- 54% of respondents say they do not feel they need to compromise on investment returns when incorporating ESG considerations.
- 85% say data reliability and consistency is one of the main ESG-related challenges they face.
- Work with your consultants to understand the best sustainable investment approach to suit your portfolio and organization.
- Engage with your managers to understand how they obtain, verify, process and report ESG related data. Ensure you have the facilities to do the same internally.
- 67% of our respondents already have some kind of exposure to private markets, and another 8% plan to make an initial allocation in the next 12 months.
- 48% of insurers plan to reduce portfolio liquidity over the course of the next 12 months.
- Conduct a portfolio review to assess how private markets exposure could benefit your investments through enhanced return and diversification.
- Engage with consultants to help you understand the opportunities available and identify the most appropriate managers.
- 63% say a lack of internal expertise limits their ability to invest in private markets.
- 25% say operational complexity is one of their major concerns.
- Review your governance structure to ensure that decision-making processes remain appropriate. Are you sufficiently positioned to make tactical or dynamic asset-allocation changes when needed?
- Balance internal teams with external resources to optimize your operations, focusing on your core areas of expertise and leveraging outside help appropriately.
Top considerations for insurers in 2023
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