Mercer & Oliver Wyman: 2024 Global Insurance Survey
Mercer and Oliver Wyman have released their 2024 Global Insurance Survey. Drawing on insights from more than 80 insurers globally, the survey highlights their investment and portfolio positioning plans for 2024 and beyond.
The report suggests four main themes for insurers: firstly, market volatility is at the forefront of insurers' concerns, with 60% of insurers citing optimising the core fixed income portfolio as a top investment opportunity over the year ahead.
Secondly, almost three-quarters (73%) of insurers either invest in private markets or plan to do so in 2024. The significant appetite for private debt evident in last year’s survey endures into 2024, with these intentions translated to more than one-quarter (27%) of insurers increasing allocations to investment-grade private debt last year. In 2024, almost one-third (32%) of insurers intend to increase allocations, seeking to access the enhanced income, diversification and structural protection benefits afforded by the asset class.
Thirdly, 61% of survey respondents regard evolving regulatory requirements and adapting to regulatory change as the key operational challenge for 2024.
Finally, among insurers already incorporating sustainability considerations into investment decisions, 70% plan to increase exposure to sustainable investments in the next 12 months, though concerns around data standardisation and transparency endure.
Private debt at the forefront
The cost and complexity of both investment instruments and manager selection remain the most prevalent headwinds to increasing allocations among those already invested. Just over one-quarter (26%) of the respondents do not invest in private markets and have no plans to do so. Liquidity factors (59%), constraints on resources to adequately assess opportunities (50%) and the complexity of investment instruments (32%) are the most cited reasons for not investing in private markets.
For insurers with no current private market allocations, the most cited hurdles include liquidity constraints, a lack of resources to assess investment opportunities, and the complexity of investment instruments.
Market volatility as an obstacle
The overarching takeaway from the survey this year is the degree to which current and potential market volatility is impacting the investment outlook for insurers across segments and business lines. Market volatility, inflation and capital management considerations are at the forefront of insurers’ concerns for 2024 across insurer types and regions.
Market volatility (61%) is the most cited challenge to insurers’ investment frameworks over the next 12 months, prompting many to reevaluate their fixed income strategies. Sixty per cent of insurers cite optimising their core fixed income portfolio as the top investment opportunity for the year ahead, followed by diversifying portfolios away from traditional asset classes (51%) and utilising illiquidity as a driver of returns (37%).
“The market experience of the past year, which didn't pan out exactly as many had expected, has reinforced the need for insurers to maintain a solid core while also maintaining the agility to respond to and capitalise on evolving market risks and opportunities,” said Joshua Zwick, Head of Oliver Wyman’s Asset Management Practice.
Evolution of sustainable investment and global opportunity
Sustainable investment and engagement remain higher in the UK, Europe and Asia compared to their US and Canadian peers. Net zero target-setting is not yet widespread, although life insurers are leading the way. A far greater proportion of insurers in the UK (100%), Europe (80%) and Asia (75%) are incorporating sustainability considerations into their investment processes relative to peers in the US (41%, down from 71% a year ago) and Canada (42%).
Stakeholder preferences and regulatory/political expectations are the most cited reasons for incorporating sustainability factors into investment decision-making, although risk reduction is another prominent driver behind adoption.
Survey highlights
Market volatility emerges as a primary concern, prompting insurers to reevaluate their investment frameworks, particularly focusing on optimising fixed income portfolios and diversifying away from traditional assets. Private debt emerges as a favoured asset class, with insurers seeking enhanced income, diversification, and structural protection benefits. Evolving regulatory requirements and sustainability considerations also feature prominently. Insurers are navigating evolving regulatory landscapes while increasingly incorporating sustainability factors into their investment decisions, driven by stakeholder preferences and risk reduction imperatives. Despite the opportunities presented by private markets and sustainable investments, challenges persist, including liquidity constraints, resource limitations for assessing opportunities, and the complexity of investment instruments.
Overall, the survey highlights the dynamic landscape insurers face in 2024, emphasising the need for agility and strategic adaptation amidst market uncertainties. Insurers must maintain a solid core while capitalising on emerging opportunities to navigate successfully in an ever-evolving global insurance landscape.
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