Before looking ahead to 2023, let’s look back for a moment. The amount of change that the world has undergone over the past few years is astounding. After a cataclysmic 2020 and a very eventful 2021, 2022 has been marked by unsettling geopolitical issues, lower (and slowing) global economic growth, rising inflation and interest rates, and monetary policy tightening in the US and elsewhere. The market-friendly “Goldilocks” market environment that characterized much of the past decade seems like a lifetime ago.

Against this still uncertain backdrop, one thing is clear: What has worked for insurance asset owners in years gone by won’t necessarily carry the day going forward. With that in mind, we would encourage you to reevaluate your investment toolkit ahead of the new year and be prepared to enter it armed with some creative, actionable ideas. Here are four that we believe may help insurers successfully navigate 2023 (Figure 1):

Figure 1

1. Embrace a solutions-oriented mindset

While the past decade was punctuated by some significant episodes of market shock, directionally speaking, most assets across the spectrum delivered strong returns, largely on the back of easy monetary policy and above-trend global growth. As we have already seen this year, insurance investors should expect (and plan for) much more economic and market uncertainty in the period ahead.

On top of that, governance procedures for many insurance companies continue to have a relatively lengthy timeline, making it challenging for these insurers (particularly those that outsource) to capture alpha amid short-lived market dislocations. Often, by the time an investment idea is surfaced, vetted, signed off, and implemented, the market may have “slammed the door” on the relative-value opportunity. In mid-March 2020, for example, as COVID concerns gripped global capital markets, there were nine consecutive days of credit spread widening, resulting in nearly 500 basis points (bps) of total widening in the US high-yield bond market. Once the US Federal Reserve (Fed) announced that it would help backstop the US economy, high-yield spreads snapped back at a rapid clip. While investment decisions are always easy in hindsight, the ability to gain exposure to assets and sectors at such extreme valuations may become more critical with potentially greater distribution of return outcomes and less market consensus.

The good news: While insurance asset owners should indeed brace for higher volatility and unpredictability, we believe today’s market landscape is ripe for active portfolio management and appears likely to remain so in 2023. This is not to say that every major sell-off will offer an attractive entry point; that assessment still must be made on a case-by-case basis, with the help of good old-fashioned fundamental research. So, what steps can you consider taking now to make sure you’re well equipped to identify and exploit investment opportunities in 2023 and beyond?

Expand your investment horizons

The frequency of conducting strategic asset allocation analyses on behalf of our clients has never been higher, due in part to our (and our clients’) desire to leave no “stone unturned” in today’s more elusive search for return. This due diligence involves ensuring that all appropriate asset classes are included in the discussion, even those that may…

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