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Navigating market volatility: Three strategic focus areas for insurers 

Navigating Market Volatility: Three Strategic Focus Areas for Insurers

Positioning your portfolio for resilience and opportunity in today’s evolving environment.

April 2025 

1. Managing Balance Sheet Risk

The challenge: Volatility is hitting both sides of the balance sheet — market swings, inflation and cost pressures are creating uncertainty around capital strength and earnings stability. Risk management isn’t just important in this environment — it’s foundational.

Key takeaway: Take a clear, data-driven view of existing and potential balance sheet risk. Use tools and professional insights to stress test portfolios, evaluate resilience and align asset allocation decisions with long-term business goals.

2. Evaluating strategic asset allocation in light of new information

The challenge: The current environment calls for patience and persistence. In times like these, it’s key to remain disciplined and stick to your strategic plan in the face of market volatility. However, it’s also important to reevaluate the portfolio’s strategic asset allocation in light of new information and market expectations — considering risk tolerance, asset duration versus liabilities, strategies to boost net investment income (NII), or improve capital efficiency in light of evolving market and liability dynamics.

Key takeaway: Reassess portfolio construction through the lens of today’s risks and tomorrow’s objectives. This could include fine-tuning duration, increasing liquidity or reallocating to higher-quality income assets to ensure that strategic asset allocation remains a source of strength, not strain.

Figure 3. Illustrative efficient frontier to identify an optimized portfolio under the new regime

For illustrative purposes only. 

3. Capturing opportunity

The challenge: Prior to this drawdown, equity valuations were notably elevated, and credit spreads were at historic lows. While recent volatility has potentially opened up more attractive entry points, identifying the right opportunities is complex. Equity markets and risk assets have weakened significantly over the last few weeks. Despite these drawdowns, Mercer sees further downside risks for equity, high-yield and other risk assets. While credit spreads have been steadily rising, they remain well below levels normally seen during a recession.

Key takeaway: Work with an investment professional to evaluate relative value across asset classes, identify opportunities aligned with your risk and liability profile, and ensure prudent and timely implementation.

Download the full paper to discover how you could position your portfolio for resilience.

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Contact us 

Chris Tschida
Head of US Insurance
Christopher.Tschida@mercer.com

Eryn Bacewich
Head of Insurance Solutions
eryn.bacewich@mercer.com

Gary Sems
National Investment Director, US Insurance
gary.sems@mercer.com

 Download the full paper

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