There’s ‘No Going Back’ For Insurance Company Investment Portfolios, KKR Says

CIOs are more confident in both liquid and illiquid allocations and building more resilient, “all-weather” portfolios.


Illustration by II

While higher interest rates and a new market regime are stressing many investors, to insurance companies, today’s markets feel closer to normalcy — and their investment performance has left them feeling confident about how they have constructed their portfolios.

The “last 12 years have been abnormal, today is normal,” said a chief investment officer at an insurance company, one of almost 50 CIOs who participated in KKR’s first insurance survey since 2021. The group surveyed oversees a total of more than $8 trillion in assets. Half were based in the U.S., a third were based in Europe, and the rest in Asia or elsewhere.

A little context: The last time KKR did the survey there were $15 trillion of negative-yielding fixed income assets in aggregate. “Today, by comparison, that number is zero,” a report on the survey says. Insurers tend to have more conservative portfolios than other institutional investors to protect their bottom line, should claims be higher than risk models expected. In a low rate environment with less risky assets like fixed income yielded little, insurers were unable to write as many policies as they might have in the past.

But higher interest rates meant CIOs could build up bigger pools of liquid assets — namely government and other investment grade bonds — to meet their overall return goals. This has benefited insurers at the business level: They can now write more policies, thus driving revenue. It has also enabled insurers to continue growing their allocations to alternative investments. That combination has given insurers more confidence in their loss reserves so they can write new business, which they want to do, according to KKR.

“The reality is that, having successfully weathered the aftershocks of a global pandemic that at first brought negative interest rates and then was followed by an epic tightening campaign during inflation’s ‘transitory’ period, CIOs are now more comfortable embracing both complexity and illiquidity,” KKR says.

And that genie isn’t returning to the bottle.


“The clear message we drew from our 2024 insurance survey participants is that there is ‘no going back’ to more traditional approaches to asset allocation, ones that had more of a singular focus on liquid credit,” according to KKR.“Indeed, having become more comfortable with the diversification and return enhancements that non-traditional investments can achieve, many CIOs are looking for opportunities to selectively allocate more to these areas.”

When asked about how important a role alternative assets would play in driving portfolio returns going forward, 47 percent of insurance CIOs said they were “very important.” Meanwhile, just 17 percent said alternatives were “somewhat important” and 37 percent said they were “not a factor.”

“The most recent investing environment has created a mentality shift where CIOs now can focus on leveraging both liquid and illiquid allocations to build more resilient, ‘all-weather’ portfolios,” KKR said.