KUALA LUMPUR (Nov 25): Asia ex-Japan managers deem traditional fixed income as the most sought-after strategy by regional insurers over the next 12 to 18 months, followed by alternative strategies including private debt, infrastructure, and private equity, according to Singapore and London-based asset management and distribution analytics and guidance firm Cerulli Associates.  

In its latest report titled “Asian Insurance Industry 2020: Knowing Your Insurance Client” released today, Cerulli said insurers’ survey responses echo managers’ expectations, as global non-investment-grade (high-yield) fixed income is the strategy that most insurers (35.7%) want to increase, followed by domestic multi-asset and alternative strategies, including infrastructure and real estate.

Cerulli senior analyst Ye Kangting said regional insurers hope to generate sufficient alpha through active management.

“But this is not easy, as they also need to comply with regulations, such as risk-based capital (RBC) rules and new accounting standards,” she said.

Cerulli said although fixed income and alternatives tend to be the most sought-after assets under current circumstance, insurers across Asia hold different risk appetites and strategy preferences.

It said in terms of fixed income, Taiwanese insurers could be more aggressive as some have reportedly increased high-yield corporate bond allocations by more than 10% in mandates around March and April 2020, hoping to profit from widening spreads, especially in the US market.

It said in Hong Kong, insurers could be more risk adverse.

Cerulli said some have been cautious about credit downgrades and turned to investment-grade bonds, because such safe haven vehicles come with higher credit quality and lower risk charges.

There are also many insurers in between, seeking high-quality emerging market bonds to capture additional yields while making sure the associated credit risk is manageable, it said.

Ye said going forward, regional insurers are expected to continue seeking portfolio resilience, diversification, and return enhancement.

“Knowing their short- and long-term demands, building strong relationships, taking holistic portfolio views with knowledge of regulations, and possessing capabilities that are complementary to insurers’ existing strategies are crucial for managers to win mandates,” she said.