73% of insurers currently invest in private markets or plan to do so: Mercer & Oliver Wyman

Nearly three-quarters (73%) of insurers currently invest in private markets, or plan to do so in 2024, while nearly four in 10 (39%) are aiming to increase their private market allocations, according to Mercer and Oliver Wyman – businesses of Marsh McLennan – who recently released their Global Insurance Survey.

The survey, which contains insights from more than 80 insurers globally, highlights insurers’ investment and portfolio positioning plans for 2024 and beyond.

A notable statistic to highlight is how 32% of insurers intend to increase asset allocations to private debt this year, up from 27% in 2023.

However, it should be addressed, that the cost and complexity of both investment instruments and manager selection remain the most “prevalent headwinds” to increasing allocations among those already invested.

Amit Popat, Mercer’s Global Head of Financial Institutions, commented: “With elevated interest rates and fixed income volatility, as well as considerable uncertainty around inflation, many insurers are reevaluating their investment frameworks and assessing ways to put excess cash to work. Allocations to private debt strategies are in focus for a significant proportion of insurers as they seek access to the enhanced income, diversification, and structural protection benefits afforded by the asset class.”

Moving forward, Mercer and Oliver Wyman also highlighted how market volatility (61%) sits as the most cited challenge to insurers’ investment frameworks over the next 12 months, which is prompting many to reevaluate their fixed income strategies.

60% of insurers cite optimizing their core fixed income portfolio as the top investment opportunity for the year ahead, which is closely followed by diversifying portfolios away from traditional asset classes (51%) and utilizing illiquidity as a driver of returns (37%).

However, steps that were taken to increase cash allocations in 2023 are set to pull back this year, with just 7% of insurers having said that they plan to increase cash in 2024, whereas 27% plan to reduce exposure.

Adding further to this, 49% of insurers report excess liquidity in their portfolios.

At the same time, it appears that meeting evolving regulatory requirements is the most cited operational challenge for insurers (61%) in 2024, however data management also remains another key concern.

Insurers also regard accounting and regulatory intrusion (39%) as the greatest challenge to implementing investment decisions across portfolios.

Joshua Zwick, Head of Oliver Wyman’s Asset Management Practice, said: “The market experience of the past year, which didn’t pan out exactly as many had expected, has reinforced the need for insurers to maintain a solid core while also maintaining agility to respond to and capitalize on evolving market risks and opportunities.”

Another important factor to highlight, is that a far greater proportion of insurers across the UK (100%), Europe (80%) and Asia (75%) are incorporating sustainability considerations into their investment processes relative to peers in the US (41%, down from 71% a year ago) and Canada (42%).

It also appears that more than two-thirds (68%) of insurers globally are incorporating sustainable investment factors in their investment decision-making, however this has fallen from the 83% figure that was reported last year.

A combination of stakeholder preferences and regulatory/political expectations are cited as being the key reasons for insurers choosing to incorporate sustainability factors into investment decision-making, although risk reduction is another prominent driver behind adoption.

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