The Private Assets Insurance Companies Want in 2023

In recent years, insurers have been swapping public assets for private ones. Higher interest rates aren’t reversing that trend — just changing it.

(Illustration by II)

(Illustration by II)

U.S. insurance companies are expected to continue their heightened allocation to private assets this year — and higher interest rates mean the opportunists have their eyes on a few assets in particular.

Before interest rates rose dramatically in 2022, insurers were already turning to alternative asset classes in search of investments with higher yields. Meanwhile, they also became increasingly comfortable with the perceived risk of alternative investments, explained Peter Cramer, senior managing director and head of portfolio management and trading at SLC Management, a $255 billion asset manager in Boston.

In a survey conducted last fall, most insurers said they planned to increase their risk tolerance and allocate even more to private assets, according to Conning, the $191 billion asset manager focused on insurance companies. That shift is already happening.

“In the U.S. I would describe the client base as opportunistically adding risk and continuing to migrate into private assets, that’s a trend for sure,” said Matt Armas, global head of insurance fixed income portfolio management at Goldman Sachs Asset Management.

Large life insurers tend to have 35 to 45 percent of their general account assets invested in private assets. That often includes a mix of mortgage loans, privately placed investment grade corporate bonds, infrastructure debt, and structured notes. The portfolios also include traditional alternative assets like private equity, infrastructure equity, real estate equity, and transportation assets, according to Mark Snyder, head of global insurance solutions for North America at J.P. Morgan Asset Management.


Smaller life insurers have much less of their portfolios allocated to private assets (typically around 10 to 25 percent) and health insurers and property and casualty insurers usually have 5 to 20 percent of their portfolios in private assets.

But higher interest rates mean some investments are getting more attention from insurers than others: private credit and infrastructure.

It depends on the insurer, but many are looking at private credit, said Jas Thandi, a partner with the global asset allocation team at Aon. They are likely also doing a relative value analysis across all private credit asset classes, according Andrew Terry, the head of U.S. insurance at Schroders.

“I think insurance companies are some of the best [investors] for renewable infrastructure,” Terry said. Insurers are trying to make more environmental-, social- and governance-conscious investments, including in renewable energy. The duration of infrastructure projects coupled with higher yields often makes them especially suitable for insurers. “It seems like it starts on the environment but it always ends on economics,” Terry said.

Regulatory uncertainty will encourage large life insurers to invest less in rated note structures and more in investment grade public credit, now that yields are more attractive. However, the decrease may be offset by growth in the corporate private placement market and by new forays into direct residential mortgage loans, Snyder said.

“Based on conversations with clients, we believe we are in the early innings of a trend toward increasing allocations to alternative asset classes,” said SLC’s Cramer. “However, product innovation has resulted in complex vehicles that qualify for the same favorable ratings and risk charges as simpler bonds, despite potentially holding greater risk.”

Regulators such as the National Association of Insurance Commissioners are considering changes to capital charges, reporting requirements, and definitions to improve transparency and better align investments with their underlying risk — developments that Cramer said are being watched closely.

At MetLife Investment Management, the $571.2 billion portfolio’s allocation to private assets remains steady and it’s looking for opportunities, said chief investment officer and president Steven Goulart in an email Thursday. He noted that many types of private assets are becoming more attractive as better diversification, higher yields, and structural protections emerge.