Insurers contemplating more aggressive investment strategies over the next year: Towers Watson survey

Nearly half (46%) of 38 North American insurers and reinsurers surveyed by Towers Watson, a global professional services company, say they plan on being more aggressive in their respective investment strategies over the next year.
Additionally, insurance executives participating in the May/June online survey asserted that low interest rates (83%) represent the greatest investment challenge; and their investment goals focus primarily on liquidity and principal preservation.
The survey examines insurance asset management, with a focus on the outsourcing of investment management. The majority of respondents in the online study, conducted in April and May 2011, had general account assets invested of more than $1 billion.
While an emphasis on fixed income investments is to be expected among insurers, nearly 40% said they expect to increase their allocation relative to alternative investments and look to other high-risk, high-yield vehicles. Only 9% of respondents said they expect to be more conservative in their investment strategies.
“It’s meaningful that a substantial number of insurers expect to embrace a more aggressive investment strategy at a time when they are clearly worried about the economy and financial market volatility,” said Christopher DeMeo, Towers Watson’s head of investment for North America. “Finding the appropriate balance between investment performance and risk will be key to successful implementation.”
The participating respondents overwhelmingly pointed to low interest rates as their greatest investment challenge. “Still, more than half of the respondents (54%) listed the risk of rapidly rising interest rates as the second biggest challenge, suggesting that fears of inflation are widespread,” Towers Watson noted.
“Interest rate concerns are a fact of life for insurers, and the current low interest rate environment has undoubtedly added to their performance pressures,” said DeMeo. “It’s somewhat surprising to see the degree to which the respondents seem to worry about inflation.
“Given the sluggish economy and sustained low interest rates, we believe that inflation risk in the near term is lower than many predict and, in fact, deflation should be considered in any planning scenario.”