Insurers found likely to boost private markets, external managers

Seventy-seven percent of insurers surveyed by Aberdeen Standard Investments expect investment returns to fall short of their targets.

Also, 80% of the 45 U.S.-, Canada- and Bermuda-based insurers surveyed said business outperformance will require higher investment risk going forward; 46% said risk management would need improvement.

Among other results of the survey:

Of those surveyed, 42% will reduce their exposure to traditional fixed income.

Fifty-six percent of respondents plan to increase allocations to alternative fixed income, chiefly in corporate loans, real estate loans and private equity.

Seventy-nine percent said their external money manager selection will be driven by seeking firms that can help manage alternative investments' complexities and risks.

Only one respondent cited expertise in environmental, social and governance investing as a key factor in selecting a third-party money manager.

"Investment strategy will seek higher returns through further shifts from public to private market assets," according to the survey report. "This shift will necessarily increase outsourcing to external managers due to a lack of internal capabilities. But those external managers … must demonstrate a genuine understanding of the insurers' needs, decode the complexities of private markets, engage in a dialogue of equals on investment strategy and provide support on risk management."

Chief investment officers at the 45 insurers, representing a combined $3.6 trillion in assets, were surveyed this past summer.

The full survey and analysis is on Aberdeen Standard's website.