62% of US insurers have said that they are willing to take more investment risk in 2024, even with concerns rising in regards to election year politics, fiscal/monetary policy, persistent inflation and volatility, according to a recent survey sponsored by insurance asset management firm Conning.
According to the survey, risk expectations generally rose with the insurer’s asset base, although firms with $5 billion to $10 billion in assets were most in agreement with the sentiment.
At the same time, firms outsourcing asset management had lower expectations for rising risk in their portfolios, compared to firms that manage assets internally (57% versus 68%).
Conning noted, that while there was not a strong relationship between insurer size and outsourcing activity, insurers who choose to outsource report lower levels of concerns about inflation, domestic political environment, monetary policy and other portfolio concerns, than those who managed assets internally.
Matt Reilly, Conning Head of Insurance Solutions and co-author of the survey report, commented: “Years of historically low interest rates demanded that insurers consider unfamiliar asset categories to help improve portfolio yields. The increase in rates has helped make those more traditional investments appealing again. While many insurers appear poised to take advantage of those yields, they also remain committed to adding to less traditional assets such as real estate, private credit and private equity.”
Scott Hawkins, Head of Conning Insurance Research and co-author of the survey report, said: “The growth in private assets and portfolio diversification, the rising prominence of artificial intelligence (AI), and the increasing challenges of staying current with investment markets can be a challenge to any insurance company. Outside expertise can be an answer for many.”
Conning’s survey was completed by 300 investment decision makers at US insurance companies in November 2023.
Meanwhile, inflation remains insurers’ top concern over the next two to three years (as measured by the weighted average of responses), making it the third consecutive year it has been the top concern in Conning’s annual survey.
The other top concerns that were highlighted – in order of importance – are the domestic political environment in an election year, the impact of monetary policy, market volatility, the impact of fiscal policy and the impact of artificial intelligence (AI).
In terms of AI, among the top concerns that surrounds the use of the technology are ethical considerations, lack of human oversight, unexpected market changes, cybersecurity and data privacy, and data quality and bias.
An important part to highlight however, is that an overwhelming 89% of insurance investment professionals think the benefits of implementing AI in the investment process outweigh the risks.
Three out of four respondents said they are already using or piloting AI and ML (machine learning) across investment-related activities such as investment research, portfolio management, investment accounting and trading.
