Demand for alternative investments has been growing in the US life insurance industry over the last year and a half, according to a report recently published by ALIRT Insurance Research.
Life insurers have been increasing their investments in alternatives, which account for 6.3% of total invested assets by the end of June 2023.
This increase in demand, ALIRT pointed out, shows the industry’s desire for higher yielding investments and its increased comfort dealing with the more complex investments, such as private equity and hedge funds, that underly the broad asset class.
ALIRT Research’s annual analysis of the life insurance industry also highlighted the moderation in returns and holdings growth last year following historic results for the asset class in the previous year – mainly due to high inflation and rising interest rates.
ALIRT, however, noted that while financial markets remained volatile in the first half of this year, insurers have continued to add to their holdings of alternative investments. It also predicted that demand for this asset class would remain even amid market volatility and higher rates.
The insurance research specialist also revealed that alternative investments have grown to 55% of the total industry surplus by the end of this year’s first half.
“As this asset class can exhibit greater volatility compared to more ‘traditional’ investments, the life industry must remain cognizant of the risk-return balance of this asset class as aggregate holdings continue to rise,” ALIRT said.
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