Insurers appetite for alternatives increases; Focus on active management
July 6, 2020 — BOSTON, LONDON–(BUSINESS WIRE)–State Street Corporation (NYSE: STT) today announced new research which reveals that 78 percent of insurers are confident their asset managers can navigate the current financial crisis caused by COVID-19. State Street 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.
The survey also found that insurers valued the transparency on market conditions and strategic counsel provided during the crisis. 79 percent 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 percent say the provision of market commentary and strategic reviews, followed by 47 percent who say their assessment of investment opportunities.
The COVID-19 crisis has fueled the appetite of insurers for alternative asset classes, particularly in private credit and private equity. In the short term, 33 percent plan to increase their allocation to private credit and 28 percent in private equity. Alternatively, 10 percent expect to decrease their allocation to private credit and 13 percent within private equity.
Uptick In Alternative Assets
Paul Fleming, global head of Alternative Investment Solutions at State Street, said: “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 percent) 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. Insurers have faced a variety of investment challenges during the crisis. The survey found respondents have faced difficulties around security valuations (39 percent); liquidity challenges (36 percent); and cash forecasting (25 percent).
John Lehner, global head of the asset manager segment State Street said: “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.”
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world’s leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $31.86 trillion in assets under custody and/or administration and $2.69 trillion* in assets under management as of March 31, 2020, State Street operates globally in more than 100 geographic markets and employs approximately 39,000 worldwide. For more information, visit State Street’s website at www.statestreet.com.
*Assets under management as of March 31, 2020 includes approximately $50 billion of assets with respect to which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.