Almost three-quarters (73 per cent) of insurers currently invest in private markets or plan to do so in 2024, according to the Mercer-Oliver Wyman Global Insurance Survey.

The professional services firms’ latest survey also found that nearly four in 10 (39 per cent) intend to increase their private markets allocations, while a third (32 per cent) of insurers intend to increase asset allocations to private debt this year, up from 27 per cent in 2023.

However, the cost and complexity of both investment instruments and manager selection remain the most prevalent headwinds to increasing allocations among those already invested.

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Market volatility was the most cited challenge (61 per cent) to insurers’ investment frameworks over the next 12 months, prompting many to re-evaluate their fixed income strategies.

Optimisation of core fixed income portfolios was cited as the top investment opportunity for the year ahead by 60 per cent of insurers, followed by diversifying portfolios away from traditional asset classes (51 per cent) and utilising illiquidity as a driver of returns (37 per cent).

Steps taken to increase cash allocations in 2023 are set to pull back this year. Just 7 per cent of insurers plan to increase cash in 2024, whereas 27 per cent plan to reduce exposure. Nearly half (49 per cent) of insurers report excess liquidity in their portfolios.

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“With elevated interest rates and fixed income volatility, as well as considerable uncertainty around inflation, many insurers are re-evaluating their investment frameworks and assessing ways to put excess cash to work,” said Mercer’s global head of financial institutions Amit Popat.

“Allocations to private debt strategies are in focus for a significant proportion of insurers as they seek access to the enhanced income, diversification, and structural protection benefits afforded by the asset class”,

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.

Mercer and Oliver Wyman are businesses of Marsh McLennan group of companies.

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