Insurance companies need to diversify their asset allocation to meet the changing requirements of regulators and the market. While traditional asset classes are declining in yield, insurers must find alternative investments that have higher yields to maintain competitiveness and premiums. Floating rate assets, real estate, and equity investments are attractive hedges against inflation.
Mercer has an extensive insurance portfolio management and advisory practice, and a team of experts to develop customized portfolio solutions. These experts partner with insurance companies to provide advice and guidance. Their interdisciplinary approach ensures the investment products meet the unique needs of insurance companies. This allows insurance companies to focus on the strategic aspects of their investment portfolios.
As a result, insurers must be diligent in their pricing decisions. It is imperative to be disciplined in setting rates for new products, which is a challenging process given the current economic environment. To do this, insurers need to coordinate their investments and business units. Product design teams and actuarial teams should work closely together to create attractive rates for new products. They should not rely on teaser rates, as they can lead to unattractive liabilities.
Private equity offers an attractive alternative to traditional investment strategies for insurance companies. These investments offer the ability to capture the illiquidity premium and generate incremental income with minimal risk. Insurance companies can also utilize collateralized loan obligations and other forms of securitized credits.
