The post-cheap money era has brought interesting times for institutional investors, including insurers. The global investment outlook report published by Oliver Wyman, Mercer and the investment and retirement business of Marsh McLennan, highlights four key challenges based on a global survey of over 80 insurers in 22 jurisdictions.
The first is the degree to which current and potential market volatility is impacting the investment outlook for insurers across segments and business lines. Specifically, this is interest rate volatility and the resultant fixed income volatility. Some 68% of survey respondents said they would be focusing on optimising their core fixed income portfolio over the coming year as a top priority.
The second challenge is insurers’ move into private markets, with 73% already investing in these or planning to do so over the next 12 months, up from 67% a year ago. US insurance companies in particular may seek to do this through vehicles with favourably adjusted costs.
The third and more critical challenge is the operational and regulatory issues facing insurance investors. Globally, regulatory frameworks for insurers are being reviewed and upgraded over 2024 and 2025, according to the report. This will further complicate insurance investors’ perennial challenge of balancing assets and liabilities. Some 61% of respondents cited this as their key operational challenge in the near term.
Data management was also a significant concern, with 45% citing timeliness and 39% citing ongoing management of asset level data as key challenges. Evolving environmental, social and governance data requirements is just one of the priority areas.
Meanwhile, 70% of insurers which are already incorporating sustainability into their investment decisions plan to increase exposure to sustainable investments over the next 12 months, even amid enduring concerns around data transparency and standardisation.
Insurers, after all, are heavily exposed to multiple effects of climate change and other sustainability concerns. Their reliance on actuarial science, meteorology, and other mechanics to attempt to quantify their risk exposure and liabilities in the years ahead mean that they cannot indulge in climate change denialism. As sustainability benchmarking and data continue to be refined and consolidated, insurers are likely to move even further in this direction.
