In times of economic distress, (re)insurance is typically considered by investors to be a defensive sector. This is not to say the sector will be unaffected by the COVID-19 crisis. Access to capital has reduced while carriers’ assets have clearly been hit by lower interest rates, wider credit spreads and an equity crash. A fall back into recession will also hinder growth opportunities, given the long-standing correlation between economic output and premium growth.
Following a volatile end to 2018, Guy Carpenter-affiliate Mercer anticipated a return to a more “normal” market environment. Although the majority of asset classes have posted strong returns for 2019, a continued march lower in global interest rates forced insurers to stretch further for yield.
Looking forward to 2020, people must again consider the implications for insurance companies of a prolonged “lower for longer” environment and stretched valuations. Furthermore, insurers have to contend with non-investment related pressures, such as underwriting, M&A and increased technology disruption. Marsh insurance clients continue to express concern that “regulatory intrusion” is proving challenging to investment activities.
With these challenges in mind, Marsh’s global insurance team has identified six investment ideas that the firm believes will aid in the successful management of an insurer’s assets in 2020 and beyond.