Interview, Fireside Chat
Why Global Insurers Are Leaning Into Risk
- Insurers are leveraging "really good shape" investing positions from the past year to deploy capital across "all regions" and "all risk types," driven by expectations of private market returns that are "above or better than" public market returns.
- Private equity remains the primary asset class for increased allocation over the "last several years," followed by significant planned increases in private credit sectors including "middle market loans, infrastructure debt, emerging market corporate debt," and "floating rate asset classes."
- To fund these strategies, insurers intend to utilize "cash" and "reduce their holdings of government securities," while simultaneously executing a plan to "slightly reduce their allocations to hedge funds."
- Capital deployment is supported by "very stable balance sheets" that enable insurers to exploit illiquidity for an "illiquid premium," with a specific expectation to utilize floating rate assets as a response to a "significant increase in the concern about inflation" that has replaced prior deflation fears.
- Market timing views have shifted from previous beliefs of "later stages" to a current consensus that the market is in the "middle stage of The Credit Cycle," a stance that supports taking on "more credit risk" and expects a recession to be "more than three years off."
- Global economic optimism persists with expectations of "good economic growth globally," though synchronization is anticipated to take time alongside pandemic control efforts; this outlook underpins credit optimism provided the recession delay holds.
- Adoption of ESG considerations has progressed over "several years" from Europe to Asia and now the States, now being discussed at the "board level" and "CEO level" to guide underwriting policies regarding "climate risk" and to reorient asset bases toward environmental, social, and governance concerns via impact investing.
- Risk appetite is expected to vary by region, with a "more pronounced 'risk on' approach in Asia" driven by rapid economic and population growth, contrasting with a "little bit less" risk appetite in Europe due to slower growth and demographic trends.