Insurers in the Americas increase exposure to municipal bonds and IG credit

Written by Adam Cadle

22/07/2020

Fifteen per cent of insurers in the Americas have increased their allocations to municipal bonds and 25% have increased their allocations to investment grade (IG) credit, as COVID-19 continues to influence investment strategies and asset class allocations.

According to a joint survey by DWS and Greenwich Associates, just 5% of clients decreased their allocation to both sectors.

A 15% decrease was reported to high yield/bank loan sector allocation against a 5% increase, and a 10% decrease to CMBS/ABS sector allocation against a 5% increase. There was a 10% increase and 10% decrease to CLO allocations.

Among those who indicated that they have altered their investment strategy as a result of the global pandemic, many are focused on reducing overall portfolio risk, with 20% indicating so versus only 5% indicating an increase to overall risk. Similarly, 10% of clients plan to decrease exposure to public equities with 5% increasing exposure. Finally, the responses indicated a slight uptick in private credit exposure.

“While the pandemic has yet to result in major portfolio construction changes, the changes we are beginning to see among asset classes, and particularly fixed income, are certainly noteworthy, and are likely indicative of larger shifts to come,” Rob McCollum, head of portfolio management, fixed income solutions, DWS, said. “Additionally, the changes we saw investors make in the short-term underscore trends that were already emerging pre-COVID-19, most notably an increased search for yield among insurance portfolios. As the pandemic and the economic crisis progress, we anticipate allocation shifts towards higher yielding asset classes to continue as investors look to capture alpha while minimising risk.”

The survey was conducted among insurance companies across the life, healthcare and P&C sectors in the Americas, with the majority having general account portfolio sizes from $1bn to greater than $20bn.

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