Conning Survey: U.S. Insurers to Embrace More Portfolio Risk in 2024, Welcome AI Tools in Investment Process

62% of U.S. P&C/life insurers expect to add investment risk in 2024

· 51% expect their allocations to private assets will be at least 20% in the next two years

· Three in four insurers using or piloting AI in investment process

Over half (62%) of U.S. insurers say they are willing to take more investment risk in 2024 despite mounting concerns about election year politics, fiscal/monetary policy, persistent inflation and volatility, according to a survey sponsored by Conning, a leading insurance asset management firm. This is Conning’s third annual survey of insurers and was completed by 300 investment decision makers at U.S. insurance companies in November 2023.

“Years of historically low interest rates demanded that insurers consider unfamiliar asset categories to help improve portfolio yields,” said Matt Reilly, Conning Head of Insurance Solutions and co-author of the survey report. “The increase in rates has helped make those more traditional investments appealing again. While many insurers appear poised to take advantage of those yields, they also remain committed to adding to less traditional assets such as real estate, private credit and private equity.”

The Decision to Outsource Assets

The survey respondents were divided almost equally between insurers who manage assets internally versus managing some or all with a third-party asset manager. While there was not a strong relationship between insurer size and outsourcing activity, insurers who choose to outsource report lower levels of concerns about inflation, domestic political environment, monetary policy and other portfolio concerns than those who managed assets internally.

“The growth in private assets and portfolio diversification, the rising prominence of artificial intelligence (AI), and the increasing challenges of staying current with investment markets can be a challenge to any insurance company,” said Scott Hawkins, Head of Conning Insurance Research and co- author of the survey report. “Outside expertise can be an answer for many.”

Respondents cited several drivers they consider when deciding to outsource their assets. Cost-saving was the leading driver, followed by the need for access to investment strategies and the need for outside expertise for risk management and asset allocation strategies.

Inflation Remains Top Investment Concern

Conning’s survey found that companies of all sizes and sectors – 80% overall – are optimistic about the 2024 investment environment. However, inflation remains their top concern over the next two to three years (as measured by the weighted average of responses), the third consecutive year it has been the top concern in Conning’s annual survey. The other top concerns in order of importance are the domestic political environment in an election year, the impact of monetary policy, market volatility, the impact of fiscal policy and the impact of artificial intelligence.

Adding Risk – But Also Seeing Higher Yields in Traditional Assets

Following a year of significant inflation, falling bond portfolio values, rising interest rates and the growth of AI technology solutions, U.S. insurers still indicated they would further embrace risk.
Insurers said they will allocate more to private assets such as private equity (61% said they will add exposure), private credit and private placements (56% will add exposure), and real assets including real estate (52%) and infrastructure (48%). Overall, 51% said their portfolios would consist of at least 20% in private assets in two years.
The survey also identified insurers’ challenges to investing in private assets. Chief among them (as measured by the weighted average of responses) were regulatory/rating agencies, followed by liquidity, and access to the analytics supporting their private asset allocations.

AI as a Risk/Benefit to the Investment Process

The impact of artificial intelligence ranked sixth among risk factors for insurers. Among their top concerns about the use of AI (via a weighted average of responses) are ethical considerations, lack of human oversight, unexpected market changes, cybersecurity and data privacy, and data quality and bias.