Marsh McLennan companies, Mercer and Oliver Wyman have joined forces to publish the most recent edition of their survey, the 2024 Global Insurance Survey of 80 insurers globally to discuss their investment and portfolio positioning plans for 2024 and beyond.
In it, they say private market allocations have become a mainstay of insurance portfolios with 73 per cent of insurers either currently invested or planning to invest in private markets in 2024; 32 plan to increase allocations to private debt this year, up from 27 per cent in 2023. “However, the cost and complexity of both investment instruments and manager selection remain the most prevalent headwinds to increase in allocations among those already invested,” the companies state in an announcement about the publication’s release. “Many insurers are reevaluating their investment frameworks and assessing ways to put excess cash to work.”
Market volatility
They add that market volatility, cited by 61 per cent of respondents, is the most often mentioned challenge to insurer’s investment frameworks over the next 12 months while 60 per cent say optimizing their core fixed income portfolio is a top investment opportunity in the year ahead. Just seven per cent of insurers plan to increase their cash holdings in 2024, while 27 per cent plan to reduce this exposure. Overall, they say 49 per cent of insurers report having excess liquidity in their portfolios.
Mid-report, however, the companies warn that private market investments come with their own costs: “Insurers rotating out of public fixed income into private debt are likely to have experienced a significant increase in costs. Private debt investment will mean higher fees, but insurers’ net-of-fees returns are likely to be higher, as are their returns on regulatory capital. We also anticipate the market for co-investments to develop, which will provide larger insurers the opportunity to invest alongside a manager with no management fees.”
Top investment challenges
In looking at Canadian numbers, the firms say Canadian companies report market volatility and increased regulation are the top investment challenges they anticipate meeting in the coming 12 months. Of those surveyed, 58 per cent indicated as much, followed by 42 per cent who said inflation will be a challenge and 42 per cent who said operational challenges (data management, aggregation and reporting) would be the top challenge to their investment plans going forward.
“Insurers are mindful of market volatility and are ready to put excess cash and liquidity to work, whether through optimising all fixed income allocations, increasing exposure to private debt or continuing the push into private markets more broadly,” the report states. “51 per cent view continued diversification away from traditional asset classes as a priority in 2024.”
