The top concern of asset allocators and investment decision-makers at insurance companies is the impact of rate increases on long-term debt, said a survey of U.K. and European insurers conducted by Clear Path Analysis.
In addition, 38% of the surveyed insurers named capital preservation as the key risk in the context of increasing interest rates.
Respondents said they expected insurers' allocations to global equities to increase by 11.5%. However, their exposures to European and U.S. equities will see reductions of 7.3% and 6.2%, respectively, as they expect they will pile into emerging markets instead.
The survey found that 16% of interviewed insurers expect to increase their allocation to passive strategies compared to 15% that expect to increase active strategies. Some 26% of surveyed insurers foresee they will increase allocations to factor-based strategies.
Illiquid assets such as private debt, infrastructure and private equity will remain very small, with only private equity exceeding 5% in average allocation, the survey found.
"As well as boosting returns through alternative illiquid investments, survey evidence suggests that insurers are also looking to strip out costs and improve underwriting performance to boost their profitability. ... A rigorous approach to selecting, assessing and managing illiquid assets is therefore of vital importance, both to firms themselves and from a wider financial stability standpoint," said Lewis Webber, head of division, insurance data analytics, insurance directorate at Prudential Regulation Authority, which regulates insurance firms in the U.K., in a news release accompanying the survey.