Key Takeaways
- • U.S. insurance companies are significantly increasing allocations to private assets in 2023, with large life insurers currently holding 35-45% of general account assets in private investments, compared to just 5-20% for property and casualty insurers and health insurers.
- • A fall 2022 survey by Conning ($191 billion AUM) found that most insurers plan to increase risk tolerance and further migrate into private assets, driven by the search for higher yields in a rising interest rate environment.
- • Private asset holdings typically include mortgage loans, privately placed investment-grade corporate bonds, infrastructure debt, structured notes, private equity, infrastructure equity, real estate equity, and transportation assets, according to J.P. Morgan Asset Management.
- • Smaller life insurers remain significantly underallocated to private assets at 10-25% of portfolios, presenting expansion opportunity as the sector consolidates around alternative investments.
- • The shift reflects insurers' growing comfort with alternative asset risk and the need to source yield beyond traditional fixed income as interest rates rose throughout 2022.
Summary
U.S. insurance companies are accelerating their deployment into private assets during 2023, capitalizing on elevated interest rates and an expanding comfort level with alternative investment risk. According to a survey conducted by Conning, a $191 billion asset manager specializing in insurance company portfolios, most insurers indicated plans to increase both their risk tolerance and allocation to private assets. This trend represents a continuation of a multi-year shift that predates the recent rate hiking cycle, though higher rates have intensified the opportunity set.
Large life insurers currently maintain the most aggressive private asset positioning, with 35-45% of general account assets allocated to these holdings. This basket typically comprises mortgage loans, privately placed investment-grade corporate bonds, infrastructure debt, structured notes, and traditional alternatives including private equity, infrastructure equity, real estate equity, and transportation assets, according to Mark Snyder, head of global insurance solutions for North America at J.P. Morgan Asset Management. Smaller life insurers significantly lag with just 10-25% private asset allocation, while property and casualty insurers and health insurers maintain only 5-20% exposure to this asset class.
Peter Cramer, senior managing director and head of portfolio management and trading at SLC Management (a $255 billion Boston-based asset manager), noted that insurers were already pursuing alternative asset classes before 2022's rate environment, seeking higher-yielding investments. The recent shift in rates has accelerated this migration. Matt Armas, global head of insurance fixed income portfolio management at Goldman Sachs Asset Management, characterized the current environment as one in which "the client base is opportunistically adding risk and continuing to migrate into private assets."
The divergence in private asset allocation between large and smaller life insurers suggests substantial room for additional capital deployment across the sector as smaller carriers build out infrastructure and expertise to participate in the alternative investment market.
Large life insurers currently maintain the most aggressive private asset positioning, with 35-45% of general account assets allocated to these holdings. This basket typically comprises mortgage loans, privately placed investment-grade corporate bonds, infrastructure debt, structured notes, and traditional alternatives including private equity, infrastructure equity, real estate equity, and transportation assets, according to Mark Snyder, head of global insurance solutions for North America at J.P. Morgan Asset Management. Smaller life insurers significantly lag with just 10-25% private asset allocation, while property and casualty insurers and health insurers maintain only 5-20% exposure to this asset class.
Peter Cramer, senior managing director and head of portfolio management and trading at SLC Management (a $255 billion Boston-based asset manager), noted that insurers were already pursuing alternative asset classes before 2022's rate environment, seeking higher-yielding investments. The recent shift in rates has accelerated this migration. Matt Armas, global head of insurance fixed income portfolio management at Goldman Sachs Asset Management, characterized the current environment as one in which "the client base is opportunistically adding risk and continuing to migrate into private assets."
The divergence in private asset allocation between large and smaller life insurers suggests substantial room for additional capital deployment across the sector as smaller carriers build out infrastructure and expertise to participate in the alternative investment market.
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