David Worsfold
Are insurers falling out of love with yield? That is the question posed by the audience voting results from the recent Insurance Investment Exchange seminar. The audience polling is one of the key features of the seminars and, over time, has tracked changes in sentiment among insurers, their key advisers and fund managers serving the sector. Prioritising yield has been one of the most consistent themes at the quarterly events. Not anymore, it seems. In response to the question “How should insurers respond to the current environment?” just 5% said by prioritising yield. 
Three months ago, a majority (52%) of attendees at the previous event had responded by saying yield should be the priority. This is a massive swing in sentiment in an audience that was made up of a fairly even mix of repeat attendees and new faces, so it can’t be easily dismissed by saying it was because a completely different set of people were voting. The June voting figures were fairly consistent with previous occasions in response to the same question over the last year, but the contrast with the new mood among attendees as autumn approaches is very marked. 
Perhaps this swing in sentiment shouldn’t be such a surprise, as attitudes to the core fixed income assets that are the traditional choice of insurers looking for yield have been changing during the course of the year. The appetite among insurers for moving away from their traditional core fixed income assets was probed by the question: “Approximately what percentage of your (insurers’) core fixed income assets do you expect to reallocate to other strategies within the next two years?”. In the past, this sort of question produced a very conservative response with most insurers only prepared to re-allocate a small percentage of their portfolios in this way. Before the summer, the voting at the June seminar showed this conservatism was weakening. While 38% thought they would re-allocate up to 10%, another 38% thought that as much as 20% of their core fixed income assets were up for grabs and almost one-fifth were looking at investing over 20%. The September audience was broadly of a similar view with 48% saying they would allocate up to 10%, and 38% again saying they would be likely reallocate between 10% and 20%. 
So, where is this money likely to go? The asset class that has been attracting growing interest is the broad mix of illiquid assets such as private debt and infrastructure, with over half saying this is where they expect to see the biggest increase in asset allocation over the next two years. 
Multi-asset solutions and liquid credit strategies such as bank loans and emerging market debt still also have their adherents though they are a smaller band. When it comes to identifying the bottlenecks and challenges to creating better insurance portfolios, a series of questions firmly pointed the finger at internal issues such as lack of resources and up-to-date modeling techniques; data and operational issues; and organisational culture. 
These are not new concerns for Insurance Investment Exchange audiences but they are growing stronger at every event. Previously, there was roughly a 50/50 split between those who put external factors such as the expense of assets and the capital treatment of the assets they wanted to hold at the top, and those who felt internal issues – data, resources, expertise and culture – were the biggest inhibitors. This was another topic where sentiment shifted markedly with just 26% focusing on the external factors and 74% now blaming internal challenges for creating the bottlenecks. Perhaps, most worryingly, overlaying all of this was also a growing fear that the business model itself may no longer be fit for purpose. 
The audience polling is an integral element of Insurance Investment Exchange events and helps shape the programme and choice of speakers for future events. At every seminar people are asked what they would most like to hear about in the future. The next Insurance Investment Exchange half-day seminar takes place on Wednesday 29 November when a panel of expert speakers will be looking forward to the challenges and opportunities for insurance company investment portfolios in 2018. Registration is now open here