Insurance companies spent 2023 taking advantage of the new market regime. To increase liquidity, they added stocks and traded up for better quality securities with higher fixed interest rates. This year, big changes are less likely but insurers are nonetheless busy adjusting allocations.
In Nuveen’s 2024 global institutional investor survey, which included responses from 224 insurance companies late last year, 79 percent of insurers said they are making few changes to their strategic asset allocation in 2024. In the prior survey, 69 percent said the same thing. Insurance companies also said they were less likely to make tactical changes. Thirty-two percent planned to do that fine-tuning in 2024, down from 44 percent the previous year.
“Many insurers have significant experience managing portfolios in relatively high interest rate and inflationary environments. Because of that, we’ve actually observed fewer insurers planning to make foundational changes to their strategic asset allocations than in years prior,” Joseph Pursley, head of insurance for the Americas at Nuveen, told Institutional Investor.
Still, insurance companies are making tweaks in their quest to build “all-weather” portfolios. They have spent years swapping public investments for private ones and that trend continues. The insurance companies surveyed are most uncertain (and likely worried) about inflation and the value of real estate, so they are seeking out investments to protect against rising prices — that aren’t buildings.
Forty-three percent of insurers said they planned to increase their allocations to infrastructure and private credit and 37 percent are increasing allocations to private equity. Meanwhile, only 29 percent are increasing their exposure to private real estate, according to the Nuveen survey.
Some investors have questioned if infrastructure is overvalued, but if their investing is any indication, institutional investors don’t agree. Insurers have already done what they said they would; private credit was a hot item for them early this year.
Insurance companies are also continuing to invest with the energy transition in mind, the survey showed. They are betting that those investments will deliver better returns and worried about the potential impact climate change could have on their businesses. Nearly half (46 percent) of insurance companies already invest in infrastructure related to new energy storage and grids, and battery storage, or have plans to over the next five years.
All the changes are making this more challenging for the investment professionals at insurance companies; 59 percent surveyed said that today’s portfolios are more complex to manage. As a result, they are increasingly outsourcing portions to asset managers.
