Insurers, particularly those in North America, are continuing to turn to the private markets, credit in particular, to diversify their portfolios and gain alpha, according to BlackRock.
Virtually every North American insurer (96 percent) plans to increase its allocations to private markets within the next two years. These carriers are targeting multiple private debt categories, with 46 percent looking to invest more in private placements, 39 percent in opportunistic private debt, and 37 percent each to direct lending and infrastructure debt.
The trend is slightly less pronounced globally, with 91 percent of respondents worldwide planning to invest more in private markets, according to the results of BlackRock’s 2024 Global Insurance Survey. The global focus leans towards opportunistic private debt at 41 percent, followed closely by private placements at 40 percent, direct lending at 39 percent, and infrastructure debt at 34 percent.
“Insurers have been increasing their exposures to private markets globally over a multi-year period of time,” said Mark Erickson, global head of BlackRock’s financial institutions group, in an email. “They are liability-driven investors, so they have been selecting private asset classes that match with their liabilities, are risk-based capital efficient, and improve overall investment performance on a risk-adjusted basis.”
Diversification and lower volatility are the primary draws of private markets for insurers, with 61 percent of North American carriers and 59 percent of global respondents citing this as their main motivation. In North America, 48 percent of insurers are drawn to private markets for the opportunity to invest in new asset classes, while 48 percent also view these investments as a means to increase income. Meeting portfolio climate targets was also a key driver, with 44 percent of North American respondents stating this reason.
Don Guo, Prudential’s group chief investment officer, is quoted in the report outlining private assets’ advantages. “Private assets provide access to opportunities not easily found in public markets, including various types and sizes of companies and targeted strategies especially impact investments, which enhance portfolio returns and diversification,” Guo said. “They also help dampen portfolio volatility, particularly from non-fundamental, technical-driven fluctuations in public markets.”
Despite this shift towards private markets, most insurers (74 percent globally and 75 percent in North America) expect to maintain their current levels of investment risk. Insurers said they are already taking sufficient risk given market conditions.
Jamie Tucker, head of U.S. life insurance at Fitch Ratings, told Institutional Investor via email that he expects life insurers to continue seeking “the illiquidity and complexity premium through private investments.”
“The allocation has become increasingly material and we expect the trend to continue,” Tucker added.
Fitch’s Tucker also noted that private markets are “quite broad,” so strategies are likely to “evolve based on market opportunities.” Currently, some life insurers are “seeing more opportunities in asset-based finance due in part to bank lending retrenchment.”
The rise in private investments has been partly fueled by partnerships between insurers and alternative investment managers, a trend Tucker expects to continue. He also highlighted the increasingly dynamic regulatory landscape, influenced by the growing complexity of insurers’ portfolios.
BlackRock’s 2024 Global Insurance Survey polled 410 senior executives from 32 markets representing $27 trillion in assets. Forty-two percent of respondents came from EMEA; 29 percent from Asia-Pacific; 19 percent North America; and 10 percent Latin America.
