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Tim Antonelli, CAIA, CFA, FRM, SCR, Head of Insurance Multi-Asset Strategy and Portfolio Manager
The more things change, the more they stay the same. Last year’s Insurance Outlook highlighted slowing growth, elevated inflation and rates, policy uncertainty, and geopolitical turmoil. I expect the themes to rhyme in 2024, but it feels like the left tail continues to grow, even if a “soft landing” is still on the table. Our macro team has been steadfast in their view that we face structurally higher inflation, shorter and more volatile cycles, tight labor markets, and shifting supply chains. Central banks will contend with a wider range of circumstances and their policy responses will be more likely to diverge. In short, we appear to be in a world that’s very different from the post-GFC era, with more volatility, dispersion, and unknowns. In response, I think insurers managing investments will need to be nimble, dynamic, and forward looking. They should rely less on history and more on what could happen. Importantly, this is not a risk-off exercise — it’s about looking for opportunities to make the most of capital while also taking steps to help protect against bubbles and shocks. Specifically, as I discuss in this year’s Outlook, I think insurers should focus on two critical themes in their 2024 investment planning:
- Doubling down on diversification— Look across and within asset classes for diversification. Also, consider “implementation diversification” (e.g., active and passive or public and private market) and be attentive to secondary benefits (e.g., diversifying with assets that also hedge inflation risk).
- Rethinking risk— Search out gaps in your risk assessment, including geopolitical and default risk. Artificial intelligence may also warrant special attention — from both a risk and an opportunity standpoint.
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