An anticipated rise in interest rates is accelerating the use of alternative investments by insurance general accounts, according to research from Cerulli Associates.
"Although they comprise a relatively small portion of total assets, large insurance companies have been known for their direct investments in private equity, real estate, and infrastructure," says Alexi Maravel, associate director at Cerulli.
"Much like other institutional investors, insurance chief investment officers and other investment professionals are using alternatives for diversification of investment risks, as well as seeking non-correlated sources of returns."
In their Insurance General Accounts: Opportunities in an Underserved Market report, Cerulli assesses the management of insurance general account investment portfolios in the US and insurance companies' increasing interest in outsourcing investment functions to institutional asset managers.
The report examines the unique nature and constraints involved in managing insurance company balance sheet assets, outlines the evolution of insurers' asset allocation decisions over recent years, and analyses what changes may lead to the movement of billions of dollars in the coming years.
"Alternatives managers that work with insurance companies privately cite regulators' lack of understanding of limited partnerships and other alternatives' structures, as well as the need for education among insurers' internal investment professionals and investment committees as barriers to adoption of alternatives in insurance investment portfolios," Maravel says.
"The general adoption of alternatives among different types of insurers has steadily grown over the past few years. Several asset managers have made acquisitions to bolster their alternatives capabilities to better serve insurers as well as other institutional clients."