➤ Insurers' investment strategies now include what were traditionally considered more esoteric assets.
➤ Third-party general accounts under asset management have grown to $3.6 trillion from $1.4 trillion.
➤ COVID-19 kicked off a shift in interest among investors toward more private credit deals.
Insurance investment trends have changed greatly over the last decade as the role of private credit has grown and shifted, according to several experts and analysts who spoke during an S&P Global Market Intelligence panel.
The focus of the panel, "Tracking Insurance Investment Trends in 2024 and the Growth of Private Credit," was to discuss recent studies on insurance investment strategies and their intersection with private credit amid a rapidly evolving, volatile market.
Interest rates help shift insurance
In the last 10 years, insurers' investment portfolios have undergone a transformation, with the composition of insurance companies' balance sheets looking very different, according to Tim Zawacki, an insurance sector strategist for S&P Global Market Intelligence.
"Today, it's just really a sea change in how the business is operated, and so we've had this transition to what are commonly called capital-light business models," Zawacki said. "With that, and perhaps one of the key catalysts for that, was the low-for-long interest rate environment that we are in the process of emerging from here over the last couple of years."
As interest rates have risen, the insurance industry has seen a significant increase in reliance on what are traditionally considered esoteric assets, and the role of reinsurance has grown in turn. How risky these private credit investments may or may not be is a hot issue for regulators at the National Association of Insurance Commissioners but remains a complicated one, Zawacki said.
"This business has really changed in a considerable way, and I think the changes are certainly at this point permanent," said Zawacki.
Private vs. public
Speaking from the private credit perspective, Richard Labelle, a senior associate for private market indices at S&P Dow Jones Indices, discussed different strategies in private credit and how they compare with some public counterparts.
Private credit tends to attract investors via its smoother returns, which are less volatile than its public peers, Labelle said.
The growing trend of private credit returns largely outpacing their public peers came during the COVID-19 pandemic, Labelle added.
"You can see that following the COVID shock in late 2019 early 2020 ... that's where the dispersion between public and private really comes into play," Labelle said.
Shifts in assets under management
Steve Doire, a strategic platform and client adviser for Clearwater Analytics, highlighted a report on insurance asset managers showing the growth of insurance's involvement with asset management, noting a 2.5x increase in third-party general account assets under management over the last 10 years, growing to $3.6 trillion from $1.4 trillion.
"In recent years, we've seen more money move into the other asset classes, most notably private fixed income, but also equity type instruments, both public and private," Doire said.