Conning, an asset management firm specialiSing in insurance investments, has released its annual Insurance Investment Risk survey, which reveals that while optimism remains high about the investment environment for the year ahead, there has been a slight dip in confidence compared to the previous year.
77% of the 310 US insurance professionals surveyed expressed optimism about the 2025 investment outlook, a decrease from the 80% recorded in 2024. This reflects a growing caution as new challenges emerge in the market.
“A greater level of uncertainty has likely led to greater restraint in insurers’ investment planning,” added Matt Reilly, Managing Director and Head of Conning’s Insurance Solutions group and author of the survey report.
“However, insurers still expect to increase investment risk, expanding beyond their more traditional fixed income portfolio holdings to include greater exposure to private assets, in order to achieve yield and diversification.”
Inflation, which had ranked as the top concern in previous surveys, fell significantly in priority this year, ranking seventh. Instead, the political climate emerged as the primary concern for insurers, with uncertainty surrounding domestic politics continuing to influence investment strategies.
After politics, the focus shifted to other emerging risks, including portfolio yields, market volatility, geopolitical events, and the impact of artificial intelligence. These factors are now at the forefront of insurers’ minds, prompting them to adjust their approaches to investment.
This year’s survey also reflects a more restrained outlook in terms of investment strategy. While the 2023 survey showed insurers eager to increase exposure to specific asset classes, particularly investment-grade fixed income, this year’s findings suggest more caution. No asset class saw more than 47% of respondents planning to increase exposure, with many opting for a “no change” or “decrease” response compared to last year.
Despite this caution, private assets remain an area of interest. Seventy-one percent of respondents currently have between 5 and 20% of their portfolios in private markets. Over the next two years, 63% plan to increase this exposure to between 10 and 25%. However, there has been some tempering of expectations, as fewer respondents expect to allocate more than 25% to private markets, compared to the previous year.
Private assets do come with risks, particularly concerning liquidity. 31% of insurers expressed significant concern about the potential liquidity issues stemming from private asset allocations, despite the fact that 92% reported confidence in their ability to meet liquidity needs in the near term.
In terms of portfolio duration, insurers are shifting strategies. While exposure to shorter-duration floating-rate assets is expected to increase, a general trend toward longer-duration assets is also emerging. 64% of respondents plan to extend duration, while just 14% expect to decrease it. This suggests that a duration barbell strategy will be popular in 2025.
Additionally, floating-rate strategies remain prominent, with 53% of respondents intending to increase their exposure to floating-rate assets, while another 25% expect no change. The influence of US Federal Reserve policies on interest rates is a critical consideration for many insurers, shaping their strategies for the year ahead.
