Insight Investment - Thu, 10/31/2024 - 19:58

Time for P&C insurers to increase their fixed income allocations?

P&C insurance investors responded to the zero-interest rate (ZIRP) era by reducing fixed income allocations in favor of equities and private investments. But, as rates have risen, we have not seen a corresponding upswing in fixed income allocations. We believe there is the potential to improve risk-adjusted returns by increasing exposure to public fixed income.

Time for P&C insurers to shift back into fixed income?

Seeking an increased level of return, P&C insurance companies strategically shifted their fixed income allocations lower in favor of equities, alternatives and, more recently, cash. With investment grade fixed income representing insurers’ largest portfolio allocation, there was little choice but to reach for income and return when the fed funds rate was close to zero (Figure 1).

Figure 1: We have reached the peak of the rate cycle, but P&C insurers have not increased their fixed income allocations¹

Now that interest rates have risen, five-year Treasury yields are currently higher than the yield on P&C insurers’ invested assets (Figure 2). With investment grade assets now offering competitive yields, we think this signals an opportunity for increasing fixed income allocations seeking to benefit from the higher yield environment and lock in sustainable high-quality income.

Figure 2 : Five-year Treasury yields have moved above insurance portfolio yields¹

¹S&P Global Market Intelligence, Bloomberg, July 2024. Past performance is not indicative of future results. Investment in any strategy
involves a risk of loss which may partly be due to exchange rate fluctuations.

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Insight Investment

Insight is a global asset manager specializing in fixed income and risk management strategies with over $892.2bn in AUM. We have been working with insurers since 1934 and manage more than $34bn for over 79 insurers globally. Our investment philosophy offers clients innovative yet practical investment solutions. We manage custom fixed income strategies to help meet clients evolving needs, such as liquidity, principal preservation, earnings stability, tax minimization and total return.

Insight is subsidiary of BNY Mellon, which offers insurance clients additional services and access to boutique investment management teams. These services offer the potential for deeper collaboration across your portfolio.

AUM as of September 30, 2024. Assets under management (AUM) represented by the value of the client’s assets or liabilities Insight is asked to manage. These will primarily be the mark-to-market value of securities managed on behalf of clients, including collateral if applicable. Where a client mandate requires Insight to manage some or all of a client’s liabilities (e.g. LDI strategies), AUM will be equal to the value of the client specific liability benchmark and/or the notional value of other risk exposure through the use of derivatives. Regulatory assets under management without exposures can be provided upon request. Unless otherwise specified, the performance shown herein is that of Insight Investment (for Global Investment Performance Standards (GIPS), the ‘firm’) and not specifically of Insight North America. A copy of the GIPS composite disclosure page is available upon request.

Jeffrey Berman

Head of North America Distribution
Jeffrey.Berman@insightinvestment.com
+1 212 365 3341
200 Park Avenue, New York, NY 10166
www.insightinvestment.com

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Time for P&C insurers to increase their fixed income allocations?

Time for P&C insurers to shift back into fixed income?

Figure 1: We have reached the peak of the rate cycle, but P&C insurers have not increased their fixed income allocations1

Figure 2 : Five-year Treasury yields have moved above insurance portfolio yields1

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Figure 1: We have reached the peak of the rate cycle, but P&C insurers have not increased their fixed income allocations¹

Figure 2 : Five-year Treasury yields have moved above insurance portfolio yields¹