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Arthur D. Little

Arthur D. Little has been at the forefront of innovation since 1886. We are an acknowledged thought leader in linking strategy, innovation and transformation in technology-intensive and converging industries. We enable our clients to build innovation capabilities and transform their organizations. ADL is present in the most important business centers around the world. We are proud to serve most of the Fortune 1000 companies, in addition to other leading firms and public sector organizations. For further information, please visit www.adlittle.com

Library: Mercer Report Top Investment Considerations for Insurers in 2024

Mercer’s Report on Top Investment Considerations for Insurers in 2024, highlights six key themes that insurers should consider as part of an iterative optimization process for their investment portfolios in 2024. With Treasury yields significantly higher compared to a few years ago, expected risk premium compression, and the desire to maximize yield, the report emphasizes the importance of reevaluating portfolio construction and asset allocation strategies.

Key Points

  • Reevaluating portfolio construction for a changing investment landscape: The report suggests reviewing investment strategies relative to goals to determine whether the portfolio can achieve needed levels of long-term return with less volatility, considering the improved prospects for fixed income returns and the potential for lower downside protection from bonds in inflationary scenarios.
  • Considering fixed income strategy in the current rate environment: The report recommends evaluating strategies that can provide stable income over the desired period, factoring in the trade-off between liquidity needs and sources, and considering diversifying the fixed income portfolio beyond corporate debt to areas like private credit.
  • Evaluating strategic use of private credit: With bank retrenchment deepening the lack of supply, the report highlights the attractiveness of private credit for insurers who can act as patient providers of capital, citing higher returns, better terms, and opportunities beyond direct lending.
  • Assessing the impact of regulatory updates: Insurers should analyze the potential impact of regulatory changes, such as the NAIC’s structured securities review, principles-based bond definition, and rating agency updates, on their current and future investments.
  • Applying a portfolio sustainability lens to quantify risks and drive value: The report encourages identifying opportunities to align investments with organizational missions and values, engaging with managers on sustainable investment integration, considering impact investing, and designing a framework for prioritizing key sustainability themes within the investment portfolio.
  • Framing governance as the key to agility: The report emphasizes structuring governance and guidelines to allow for the flexibility needed to capitalize on rapidly shifting investment opportunities, while keeping frameworks simple and straightforward within appropriate guardrails.

Conclusion

Mercer’s report highlights the need for insurers to reevaluate their investment strategies and asset allocations in light of the changing market landscape, regulatory developments, and the growing importance of sustainability considerations. The report underscores the importance of adopting an agile and iterative approach to portfolio optimization while considering factors such as liquidity needs, risk tolerance, and organizational goals.

Link to full report: click here

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