Alternative investment managers (Alt-IMs) are expected to remain active in the US life insurance sector through direct investment in life insurance companies, Fitch has said.
The greater investment focus by life insurers on private asset classes has led to increased involvement of Alt-IMs in the life insurance industry, Fitch stated. The tie-ups between life insurers and Alt-IMs include equity investments and/or investment mandates. Alt-IMs have also acquired life insurers or legacy blocks of life insurance business.
“Alt-IMs continue to raise third-party capital from investors through co-investment opportunities and committed capital vehicles to fund new business growth.”
Low interest rates have caused shifts in life insurers’ investment strategies and overall asset allocation in search for yield. In recent years, life insurers have increased allocation to private asset classes, including commercial mortgage loans, private placements and alternative investments in lieu of public corporate bonds, which have been a mainstay of life insurers’ investment portfolio. The sharp decline in interest rates in 2020 has accelerated the trade-off of asset liquidity for yield.
“Positively, life insurers have not increased investment exposure to below-investment grade bonds,” Fitch added.
