Hemmed in by competing investment priorities, portfolio managers at life insurance companies are treading a delicate balance. They’re endeavoring to increase credit risk and yields while not invoking excessive and regulatory-mandated capital charges that could prompt credit ratings agencies to downgrade them.
Cerulli Associates discloses this finding in a new report, “Insurance Asset Pools 2015: Emerging Addressable Opportunities for Asset Management.” The study examines the management of insurance investment portfolios in the U.S., as well as insurance companies’ increasing interest in outsourcing investment functions supporting their general accounts.
“[W]ithin the context of heavily high-quality fixed-income portfolios, insurers will generally try to add credit risk on the margin, taking advantage of an individual credit falling a notch or two either within the investment-grade universe, or into the upper reaches of high-yield/non-investment-grade spectrum,” the report states.
With the latter in mind, nearly 7 in 10 (69 percent of) asset managers and consultants surveyed by Cerulli say they intend to boost private income and private debt as a percentage of the fixed income allocations for their insurance general accounts. Solid majorities (56 percent) also plan to boost allocations of floating-rate debt and emerging market debt.