Low-interest rates over the past couple of years have prompted many North American insurers and insurance investment managers to turn toward new strategies like private market debt and equity investments to offset the yield shortfalls of their typical fixed-income investments. We surveyed 40 Chief Investment Officers about their 2023 private market allocation plans so that the results of our survey might help guide insurers on how to measure and compare exposure and weightings relative to overall asset allocation flows.
Our survey participants represented insurers of property/casualty, life & annuity, insurance asset management, captive insurance and reinsurance, with assets under management (AUM) ranging from $250M to more than $5B. Survey respondents cited several drivers behind their decision to increase the private market allocation, such as the need for higher yields and better risk/return ratios, as well as the ability to capitalize on rising interest rates and hedge against inflation.
New investment strategies include investments in resources like timber, mining and gas/oil, as well as technology advancements like the Internet of Things. Renewable energy also saw a lot of interest, reflecting the larger ESG trend across a variety of industries.
Given that interest rates have started to stabilize, it is unclear how long the trend toward private market investing will continue. Still, survey respondents indicated that they intend to increase allocations to certain private investment types over the next 12-24 months, particularly in private credit/debt, private equity, venture capital, real estate and infrastructure. This indicates that private market investments will have a place in insurance portfolios for at least the next few years.