Covid-19 has fuelled insurers' appetite for private equity, says State Street survey

A new survey by State Street Corporation reveals that the Covid-19 crisis has fuelled the appetite of insurers for alternative asset classes, particularly in private credit and private equity. 

In the short term, 33 per cent plan to increase their allocation to private credit and 28 per cent in private equity. Alternatively, 10 per cent expect to decrease their allocation to private credit and 13 per cent within private equity. 

Angela Summonte, head of Asset Owner and Official Institutions, Sector Solutions EMEA, says: “With traditional fixed income strategies generating lower returns, we are observing insurance companies increase allocations into this asset class at an accelerated pace. We’re seeing an uptick in insurance firms coming to us for our alternative asset servicing capabilities and differentiated skill sets, as well as our broader technology offering. We believe the current Covid-19 crisis will further intensify the move towards alternatives.” 

When it comes to their asset allocation, the survey reveals more than a third (36 per cent) of insurers expect to increase their allocation to actively managed investments in the short-term, compared to one in ten who anticipate it will fall, as is common during market downturns.
State Street also surveyed insurance companies around the world on the impact of the Covid-19 pandemic and their views on how asset managers have handled the crisis. 78 per cent of insurers are confident their asset managers can navigate the current financial crisis caused by Covid-19.

The survey also found that insurers valued the transparency on market conditions and strategic counsel provided during the crisis. Seventy nine per cent rated the communication, support and information provided by them during the crisis as good. When asked what the most important element of support provided by them has been, 76 per cent say the provision of market commentary and strategic reviews, followed by 47 per cent who say their assessment of investment opportunities.  

Insurers have faced a variety of investment challenges during the crisis. The survey found respondents have faced difficulties around security valuations (39 per cent); liquidity challenges (36 per cent); and cash forecasting (25 per cent).

Summonte says: “The Covid-19 crisis has created a number of challenges for asset owners and managers, but our research shows insurers appear to be coping well when it comes to their investment operations. They have confidence in their asset managers and plan to make changes to their asset allocation to address the new world that we now live in.”