Investment Environment Not Spooking Insurers

Despite ongoing economic volatility, 46 percent North American insurers and reinsurers intend to be aggressive in their respective investment strategies over the next year, a new survey  from Towers Watson finds.

Nonetheless, the 2011 Insurer Asset Management Survey did reveal a healthy dose of anxiety among respondents regarding interest rates, with 83 percent asserting that low interest rates are the greatest investment challenge they face. Interestingly, the opposite fear of inflation and attendant rapidly rising interest rates also registered with respondents with 54 percent deeming it a challenge.

Christopher DeMeo, Towers Watson’s head of investment for North America, said the willingness of insurers to be aggressive in such uncertain economic times was telling.

“It’s meaningful that a substantial number of insurers expect to embrace a more aggressive investment strategy at a time when they are clearly worried about the economy and financial market volatility,” he said. “Interest rate concerns are a fact of life for insurers, and the current low interest rate environment has undoubtedly added to their performance pressures.”

The volatility is also impacting asset mix. When asked to break down invested assets by asset class, taxable fixed-income investments ranked first at 60% with the full sample and at 77% among life (re)insurers. Tax-exempt municipals (11%) were followed by cash and high-yield fixed income. Common stock was pegged at 8%, with the balance spread among real estate, hedge funds and other classes.

As for overall investment strategy, the survey found liquidity is king, with 28 percent of respondents naming liquidity as their top investment objective, followed closely by principal preservation.

“Given some of the losses that many insurers have realized, and some overall poor performances within the industry, many are seeing that being liquid and maintaining principal are even more critical,” added DeMeo. “Financial strength is paramount.”

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