➤ US property and casualty and life insurance general accounts are projected to reach a combined $8 trillion in cash and invested assets by 2024.

➤ Insurance companies are postponing the pivot to longer-duration fixed-income securities, opting instead for shorter-term bonds.

➤ Concerns regarding asset quality are emerging, particularly in commercial mortgage investments.

Cash and invested assets in both US property and casualty and life insurance general accounts are poised to reach a combined $8 trillion milestone by 2024, experts said during a May 14 S&P Global Market Intelligence webinar.

This substantial figure underscores the robustness and resilience of the insurance industry amid evolving market dynamics and economic uncertainties.

Shifting investment strategies

Insurers are postponing a pivot toward longer-duration fixed-income securities and opting instead for shorter-term bonds, said Tim Zawacki, principal research analyst for S&P Global Market Intelligence. This strategic move is fueled by the perceived attractiveness of bonds at the short end of the yield curve offering enhanced yields and increased flexibility amid uncertainties surrounding the US economy and central bank interest rate policies.

While concerns regarding asset quality are limited to specific categories, commercial mortgage investments have emerged as a focal point for life insurers, Zawacki said. Other-than-temporary impairments and unrealized losses have spiked, primarily driven by challenges in the embattled commercial real estate sector.

Despite higher interest rates, insurers continue to allocate elevated portions of their portfolios to privately placed corporate debt, leveraged loans, mortgages and other long-term invested assets, Zawacki said. Supply and demand dynamics, along with the increased role of third-party asset managers, contribute to this ongoing trend.

Access a replay of the webinar

Macroeconomic outlook

The outlook for the insurance sector as an asset class for the rest of 2024 "focuses around a growth picture that's resilient, slowing, but not recessionary," said Theresa Veres, portfolio manager at Western Asset Management Co. "We believe the slower growth comes from less consumption from the consumer, so less consumer spending."

Retail sales growth of 1% to 1.5% is expected for the remainder of this year, Veres added.

"Inflation which has been running high for the first three months of this year, we expect it to come down," Veres said. "Overall, we feel the current backdrop is still favorable for fixed income."

"So overall, we think higher yield rates are attractive to insurance investors," Veres said.

This view was "broadly" echoed by Brandon Conley, client adviser at JP Morgan Asset Management, who added that "the trend over the last few years has really been to move towards private illiquids or alternatives."