Wellington Management - Wed, 05/03/2023 - 12:36

Insurance Multi-Asset Outlook: Today’s sweet spot for yield, the growing role of alts

Insurance Strategist and Portfolio Manager Tim Antonelli provides his latest multi-asset views for insurers, with an emphasis on opportunities in alternatives and on core fixed income for portfolio ballast and potentially attractive risk-adjusted yields.

The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.


  • I expect tighter credit conditions resulting from the banking industry turmoil and restrictive central bank policy to slow the global economy. Equity valuations have actually increased against this deteriorating fundamental backdrop, so I continue to believe corporate earnings and multiples are vulnerable and favor reserve-backing fixed income over surplus or risk assets.
  • I believe adding to duration in this environment may be prudent and have an underweight view on surplus fixed income. I expect duration to perform well given that a US recession now seems more likely and could happen sooner than previously expected. I remain somewhat bearish on European and Japanese duration. Spread valuations are slightly better but still don’t adequately reflect a worse fundamental outlook. I still favor some securitized assets.
  • Higher market stress tends to drive up correlations across surplus assets. Still, I think fundamentals are differentiated in China and Japan, both of which I favor over the US and Europe. I have relatively high confidence that China’s reopening should support a bullish stance on its equity market. Japan should benefit from China’s zero-COVID exit and from having easier policy than other developed markets.
  • My commodities view remains positive, but I am now focused on gold. I expect markets to shift from an inflationary to a “safe-haven” mindset, which I think should improve gold’s upside potential in a highly uncertain environment — recognizing, however, that a pure gold trade may be difficult for most insurers to execute.
  • I continue to see opportunities in alternatives but would be selective at this point in the cycle. I suggest putting a premium on manager skill and ability to source deals, while seeking diversification benefits from uncorrelated return streams and dampened volatility due to private-asset pricing.
  • Downside risks to my views include a severe credit crunch and a deep recession in the US or Europe, as well as geopolitical risks involving China or Russia. Upside risks include a soft-landing scenario — where bank stresses are idiosyncratic and help to achieve the Fed’s inflation goals — and a decisive uptick in China’s fundamentals.

Themes highlighted in my 2023 insurance outlook were pulled forward during the year’s first quarter, as tighter monetary policy induced the first near-systemic fallout of this cycle. Runs on two regional US banks, as well as the forced sale of a major Swiss bank to UBS, sparked a loss of confidence in the global financial system. As of this writing, authorities had staunched the bleeding of deposits by implementing a variety of measures aimed at ensuring liquidity and protecting depositors. But with fault lines emerging as a result of higher rates, a reassessment of the investment landscape is warranted. I think the economy and markets will face their biggest test in the coming months and continue to believe that an expanded investment tool kit, a focus on downside mitigation via asset allocation, and a solutions-oriented mindset should serve insurers well for the rest of the year

Click below to read Tim’s full outlook and implementation ideas..



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