Life insurers extend the chase for alternative assets

The asset class remains compelling for Asia-Pacific life insurance companies in 2023 despite market uncertainties and doubts over valuations in the private market.
Life insurers extend the chase for alternative assets

Life insurance companies in the Asia Pacific are set to extend the pursuit of alternative investments, with a focus on long-duration assets.

This is to further diversify their portfolio and hedge against inflation while adding asset duration to address the mismatch between assets and liabilities, industry experts said.

Rick Wei, 
JP Morgan AM

“Asia-Pacific insurers plan to increase allocation to risk assets in 2023 after unprecedented volatilities experienced in 2022,” said Rick Wei, head of Asia ex-Japan insurance strategy at JP Morgan Asset Management.

In addition to public and private equity, Asia insurers are diversifying their risk asset allocation for capital efficiency, diversification, stable income, and inflation protection, he said.

“As elevated inflation likely lingers through 2023, the case for allocating to alternatives becomes especially compelling, particularly for core real assets that have implicit or explicit inflation hedges in place,” Wei told AsianInvestor.  

Over the next 12 to 24 months, they plan to increase allocation to assets including core real assets, private credit (from senior secured to opportunistic), private equity, and ESG-compliant investments, he noted.

With the cost of debt rising and diminished liquidity in certain capital markets, insurance investors are also seeing opportunities in distressed credit, special situations lending, as well as secondary-market strategies that buy pre-existing private fund assets at a discount, he added.


For life insurance companies across Asia, asset and liability management (ALM) is their top priority in portfolio management due to regulatory changes around accounting and capital regimes in places such as mainland China, Hong Kong, and Korea.

Max Davies,
Wellington Management

“Despite the massive change in the investment environment, life insurers’ structural need for duration isn't going anywhere,” said Max Davies, insurance strategist at Wellington Management.

“Asset classes that offer long duration should continue to be resilient throughout any market fluctuations,” Davies told AsianInvestor.

Besides fixed income, certain asset classes within private markets, such as investment grade private credit, infrastructure debt, and real estate debt could be good choices for life insurers.

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Beyond the potential for long duration and a yield pickup, such holdings can also offer diversification, a fixed tenor, as well as ESG integration in the case of infrastructure and real estate, Davies said.

However, he cautioned there is some evidence of insurers’ demand for alternatives cooling recently as a result of uncertainties around valuation in the private market after the 2022 downturn in public markets.

A delayed response of private assets valuations compared with the public markets, due to the illiquid nature of the private market, is commonly observed.

“So, we would probably advocate for a more cautious and thoughtful allocation to private credit moving forward,” said Davies.


Teruki Morinaga,
Fitch Ratings

In Japan, life insurance companies continue to increase allocation to alternative assets, with private equity funds and hedge funds being the main instruments, according to Teruki Morinaga, Asia Pacific insurance director at Fitch Ratings.

As a proportion of the giant balance sheets of Japanese life insurers, allocations to alternative assets remains small, at around 1-3%.

This is partly due to limited opportunities in the region’s private market, Morinaga told AsianInvestor.

In Korea, there has been a similar trend for life insurers to gradually add allocation to beneficiary certificates. This is mainly in private debt, although their weighting in overall portfolios is still below 10%, according to Siew Wai Wan, Asia Pacific senior director for insurance at Fitch Ratings.

Siew Wai Wan,
Fitch Ratings

Riding on the government’s net-zero commitment by 2050 and push for clean energy, Korean life insurers are weighing up infrastructure debt investment in solar energy and other clean energy-related projects in response to government encouragement, Wan noted.

“They're more conscious and more mindful to invest in such projects going forward because of the current emphasis on green projects,” Wan told AsianInvestor. When existing bonds mature or new premiums come in, this could be a new consideration on the table, he said.

The trend is driven by the demand for better ALM to address the mismatch between the duration of their assets and liabilities rather than pure return enhancement, he added.

These investments are usually benchmarked against the yield of the 10-year Korea Treasury Bond (KTB), which yields around 3.4%. 


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