Invesco - Mon, 12/18/2023 - 20:34

Alternative Opportunities for Insurers

Executive summary

  • Private credit: The current environment is extremely conducive to executing conservatively structured transactions. This aligns well with most insurers’ philosophy of strong risk management on both sides of the balance sheet. Our anticipation of an improved opportunity set with distressed and special situations debt means insurers may see more opportunities for equity-like returns in their private credit bucket, which enhances capital-efficiency. Commercial real estate debt is anticipated to remain highly attractive in both economic and capital-adjusted terms as well.
  • Private equity: Broadly speaking, we encourage insurance clients to be selective in their private equity allocations in the current environment. Strategies that rely heavily on leverage may struggle to deliver strong risk-adjusted returns in the current interest rate environment. 
  • Real assets: While insurers’ recent hesitation to invest in real estate equity exposure is understandable, we believe we are approaching a point in the economic cycle where this will shift, particularly for U.S. life insurers with longer time horizons and lower risk-based capital requirements. Infrastructure will likely continue to be attractive for insurers outside the U.S. who are looking for higher returns in a relatively capital-efficient asset class that also diversifies from their predominant asset risk exposures.

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