Chief Investment Officers (CIOs) from property and casualty, life insurance and reinsurance firms around the world say the present low interest rate environment is the main challenge facing their organizations today.
With returns from bonds insufficient to match liabilities, 75 per cent of the 200 CIOs and investment team members surveyed by Natixis Investment Managers said it is essential for insurers to invest in alternative assets going forward to diversify their portfolio risk. That said, 89 per cent say financial rules keep them from investing in higher-risk assets. To help balance these demands, 72 per cent say they have delegated at least some of their portfolio management to external managers with the average firm outsourcing almost half of their portfolio management to an external firm. A full 10 per cent say they delegate the management of their entire portfolio to outside firms.
“Low rates have a number of tangible impacts on insurers’ portfolios. Most visible are lower returns as bond yields, in tandem with rates, remain persistently subdued,” say the report’s authors. “For many, this leads them to look to alternative investments for a wide range of portfolio functions where traditional assets are coming up short.”
Of those surveyed for the report, entitled Rock and a Hard Place, 53 per cent say their organization is increasingly using alternatives as a replacement for low-yielding fixed income investments; 57 per cent are increasing their investment in private assets such as real estate and private equity and 55 per cent are increasing their investments in other alternative strategies.