Insurance companies across the globe continue to be challenged by low or negative real yields and shrinking risk premiums. Improving portfolio returns while managing downside risk remains the fundamental challenge facing insurance companies today. In order to address this challenge, there has been a notable increase in illiquidity and complexity risk across the industry – a trend we expect to continue into 2022.

 

Insurance company investing has undergone a quasi-revolution of sorts, as insurers of all sizes embrace greater sophistication in their investment activities as a way to seek improvements in income and surplus growth. This trend is illustrated in the growing combination of alternative asset managers with insurance companies, and points to the importance of investments as a lever for growth for many companies.

 

These changes are driving a re-evaluation of proper governance structures, portfolio strategy, and liquidity needs across the industry, as well as a desire to leverage scale to drive operational and fee efficiencies within the investment program. The ultimate objective of our clients is not to merely beat a benchmark, but to contribute positively to growth in overall enterprise value. To maintain alignment with this objective and address the myriad of challenges facing insurers today requires a much broader toolkit and the re-thinking of old paradigms.

 

In this paper, we will share investment themes we believe insurance companies should consider in the coming year including:

 

  • Continued growth in alternatives
  • An evolution in private debt
  • Expanded use of illiquidity and complexity premiums
  • Sustainable investment takes center stage
  • Elevated inflation risk
  • Capital efficient solutions update – for US insurers

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Investment management and advisory services for US clients are provided by Mercer Investments LLC (Mercer Investments), which is one of several, associated legal entities that provide investments services to clients as part of a global investment advisory and investment management business (collectively referred to as “Mercer”).Mercer Investments LLC is registered to do business as “Mercer Investment Advisers LLC” in the following states: Arizona, California, Florida, Illinois, Kentucky, New Jersey, North Carolina, Oklahoma, Pennsylvania, Texas and West Virginia; as “Mercer Investments LLC (Delaware)” in Georgia; as “Mercer Investments LLC of Delaware” in Louisiana; and “Mercer Investments LLC, a limited liability company of Delaware” in Oregon.