Fiddich Review Centre
Alternative Investment

US life insurer investment portfolios to withstand market volatility – InsuranceNewsNet

Alternative investment income is expected to continue to normalize from record results in 2021. The increasing role of alternative investment managers in the life insurance industry has been largely neutral for insurers. However, regulatory/accounting changes and challenging macroeconomic conditions are driving major shifts in product strategies, with changes in the competitive landscape that may have longer-term credit implications for the industry.

Buying opportunities amid market volatility will depend in part on the asset class, product structure, and yield curve positioning. Insurers have been focusing on liquidity and capital, often buying into higher-quality asset portfolios amid increasing recessionary pressures. In volatile or weakening markets, sufficient liquidity is necessary to take advantage of attractive buying opportunities, while exposure to asset classes that offer protection or hedge risks within investment portfolios protection can stabilize returns and truncate downside risks. Insurers have generally underweighted emerging market debt, which has tended to underperform during rising rates and a strong USD.

The favorable upgrade/downgrade ratio of investment opportunities since 2021 is expected to normalize into 2023. “Real assets” that traditionally offer inflation hedges such as residential and commercial real estate could be less effective, given higher financing costs, but this could moderate if interest rates stabilize. Distressed commercial properties may see material market devaluations, including in commercial properties in central business districts in major metropolitan cities.

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