Interview, Fireside Chat, Other
Facing Rising Rates, Insurers Turn to Private Assets, Real Estate — Even Crypto
- A recession is anticipated only if monetary tightening overshoots and severely slows the economy, whereas the prevailing view is that a recession will not likely occur within the next few years despite an expected economic slowdown.
- Rising inflation is projected to increase auto and home repair costs for property casualty companies, driven in part by Chinese production reductions, and may force higher interest rates if exacerbated by the invasion of Ukraine.
- Higher interest rates are expected to improve yields on savings products like annuities and unit-linked products over time, while eventually leading to lower premiums for homeowners and auto policies, though this pass-through will be gradual.
- Insurers maintain long-term capital buffers for payouts, as insured events in life business occur over 30 to 40 years and auto/homeowner policies turnover frequently, ensuring consumer retention over fairly long periods without risk of a "run on the insurer."
- The current environment is considered favorable for investing due to recent equity sell-offs, offering more opportunities to deploy capital at lower prices than in 2020 or 2021, provided rate increases are not too rapid.
- Companies plan to allocate capital into real estate over a long period as an inflation hedge and into floating-rate assets to benefit from rising rate yields, while potentially accepting stronger credits or covenants in less liquid private markets where immediate liquidation is unnecessary.
- Firms exploring crypto are aiming to understand the infrastructure to eventually denominate policies and accept premiums in cryptocurrency, while a lack of liquidity in private markets is not viewed as a constraint due to the nature of insurance liabilities.
- ESG and sustainability initiatives are top of mind in Europe, where regulators may use capital regimes to reward or penalize responsiveness, and are catching up rapidly in the United States after being slower to develop compared to the significant importance placed on ESG in Asia.
- Insurers intend to deploy capital positively into sustainability projects such as solar and wind farms or low-income housing, while actively reviewing portfolios to improve environmental, social, and governance performance.
- Views and forecasts correspond to the recording date of May 23, 2022, and were formed before Russia's invasion of Ukraine and prior to the survey conducted in February.