The study by investment consultancy bfinance concluded that since the current inflation surge builds on longer-term pressures, most insurers intend to exit low-yielding bonds and invest in less liquid assets. The survey found that 61% of insurers intended to reduce fixed income allocations over the course of the next 1.5 years and the same amount planned on increasing exposure to “unfamiliar” assets, such as private and emerging market debt, private equity, and infrastructure. The study spanned 90 insurers with over $5 trillion in AUM.
Additionally, the study found that 74% of insurers expect their portfolios to become less liquid over the coming 1.5 years. Some of these insurers also fear that a market shock in the future may force even more selling to more liquid public markets.
Kathryn Saklatvala, who co-authored the report, says, “The rise in investment diversification . . . is not a pandemic story, in that the low-yield decade that followed the [2008 financial crisis] has placed all traditionally conservative investors under growing pressure.” “Yet the pandemic and its impact on inflation, rates and systemic risk have produced a distinct change in the pace . . . speeding up the shifts towards new asset classes and portfolio illiquidity.”