A new macroeconomic outlook, along with three recessionary scenarios for insurers to study, is discussed in a new note from Gallagher Re, entitled, Commercial Real Estate Investments: A macroeconomic outlook and recessionary scenarios for insurers.
In the report, they note that there were concerns at the beginning of 2024 that the commercial real estate (CRE) market could be headed for a major downturn. “Given the importance of housing and real estate more broadly in the economy, this downturn would likely spread to the overall economy and cause a recession,” they write. “The data and current forecasts suggest that it is more likely that the CRE will remain largely stable.”
That said, they note that insurance companies are major CRE market investors, on average investing between nine and 12 per cent of their portfolios in the sector. “While figures do not indicate signs of an imminent deep recession, trends suggest a probably downward revaluation of insurers’ legacy assets that could make insurers want to reevaluate their strategy on relative exposures to CRE.”
They say there are multiple direct and indirect ways that insurers can be exposed to the market. They also note that CRE plays a more significant role in life insurer asset and liability management. “Life insurers and non-life insurers diverge not only in the risks they cover, but also in their investment approaches,” they write.
