Market conditions pushing insurers towards alternative assets

Insurers are increasingly turning to alternative assets in the face of persistently low bond yields in response to tightening central banking policies globally, according to a new research by Clearwater Analytics.

Insurers are facing historically low bond yields, forcing them to rethink their investment strategy in order to maximise returns.

A poll of over 110 firms representing more than $5 trillion in AUM showed that nearly 93.5% insurers are investing in private market assets to take advantage of high yields on offer, with over three quarters using them as a measure to diversify their portfolios.

Clearwater research highlighted that the three asset classes that respondents were most focused on increasing their exposure to are: private credit (70%), and private equity and real estate (over two thirds).

Notably, over a third of insurers reported that they plan to add to their allocations of alternatives in response to current and expected market conditions.

"The research follows a month where the US Treasury yields curve has hit an inversion point – something that has typically been a signal of an approaching recession," Clearwater noted.

Commenting on the findings, Jonathan Flitt (pictured), global head of alternative investment solutions at Clearwater Analytics, said: “The allure of illiquid private market assets, and the potential for high returns, is something that hasn’t been broadly associated with insurers. As bond yields remain historically low in response to tightening central banking policies around the globe, more and more insurers will look elsewhere in order to maximise returns."

Flitt added: "This, coupled with proposed changes to the Solvency II regulations potentially freeing up previously tied up capital, could be driving more insurers towards incorporating alternative assets as part of their investment strategy.”

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