Wednesday, May 1, 2024

KKR Survey: "There’s ‘No Going Back’ For Insurance Company Investment Portfolios"

From Institutional Investor, April 30:

CIOs are more confident in both liquid and illiquid allocations and building more resilient, “all-weather” portfolios.

While higher interest rates and a new market regime are stressing many investors, to insurance companies, today’s markets feel closer to normalcy — and their investment performance has left them feeling confident about how they have constructed their portfolios.

The “last 12 years have been abnormal, today is normal,” said a chief investment officer at an insurance company, one of almost 50 CIOs who participated in KKR’s first insurance survey since 2021. The group surveyed oversees a total of more than $8 trillion in assets. Half were based in the U.S., a third were based in Europe, and the rest in Asia or elsewhere.

A little context: The last time KKR did the survey there were $15 trillion of negative-yielding fixed income assets in aggregate. “Today, by comparison, that number is zero,” a report on the survey says. Insurers tend to have more conservative portfolios than other institutional investors to protect their bottom line, should claims be higher than risk models expected. In a low rate environment with less risky assets like fixed income yielded little, insurers were unable to write as many policies as they might have in the past.

But higher interest rates meant CIOs could build up bigger pools of liquid assets — namely government and other investment grade bonds — to meet their overall return goals. This has benefited insurers at the business level: They can now write more policies, thus driving revenue. It has also enabled insurers to continue growing their allocations to alternative investments. That combination has given insurers more confidence in their loss reserves so they can write new business, which they want to do, according to KKR....


They can invest in collateralized Beanie Baby obligations for all I care as long as they maintain their claims-paying capacity. If they don't, perhaps top insurance company officers should be subject to the old-school justice of Henry I:

Does King Henry I's Order of 1125 Apply To The BoE and Treasury As Well As To The Royal Mint? 

"All the moneyers who were in England should be mutilated"
This was the order given by King Henry I in 1125. Specifically, they should each "lose their right hand and be castrated....