- Head of Multi-Asset Strategy – Insurance
United States, Institutional
Change
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Is that light at the proverbial end of the long tunnel that was 2020 – 2021? At least from an investment standpoint, it’s starting to feel that way for many of our insurance clients — not that 2021 has been without major challenges and volatility, or that 2022 doesn’t pose continued risks (including the fast-spreading Omicron variant of COVID-19), but there seems to be a sense of cautious optimism heading into the new year that’s been missing since early 2020.
The COVID-19 crisis has galvanized the global insurance industry in many ways and has forced insurers to reassess all aspects of their business. We have observed a noticeable uptick in insurer requests for strategic asset allocation studies, a spike in demand for actionable ideas to advance ESG integration broadly, and a growing desire to address climate-related risks and opportunities specifically. We have also seen insurers focus on all flavors of risk capital, both regulatory and rating agency-driven, with the goal of optimizing their portfolios accordingly. Finally, the industry is dusting off its inflation protection blueprints to prepare for the mounting threat of higher inflation in the period ahead.
Thus, our 2022 outlook for global insurers is framed around the three key themes of: 1) inflation; 2) capital; and 3) ESG, taking into account that these topics do not neatly lend themselves to “one-size-fits-all” solutions because no two insurers are exactly alike.
Theme 1. Inflation: An unwelcome blast from the past
For all the economic crises experienced over the past three decades, it’s safe to say that concerns about runaway inflation haven’t characterized any of them. From 1990 through 2020, the average annual rate of change in the US Consumer Price Index (CPI) was 2.4%, a far cry from the 7% run rate of the 1970s or the nearly 6% levels of the 1980s. Fast forward to 2021: Per the US Bureau of Labor Statistics, the 12-month change for the CPI was 6.2% as of 31 October (not seasonally adjusted), with inflation fears continuing to climb as the likelihood of inflation being just a “transitory” phenomenon (as opposed to a more “persistent” one) begins to wane.
The inflation story to date has largely been predicated on backed-up global supply chains that have coincided with rising consumer demand for goods and services (as much of the developed world reopened from COVID), coupled with a reduced labor pool that is driving wages up. Consumers have increasingly felt the pain of higher prices in recent months — and it may not get better anytime soon. In particular, elevated CPI components like rent may be indicators of inflation taking hold for the longer term and not being a mere “blip” on the screen. Insurers, with their often significant exposure to fixed income assets, along with liabilities that can grow as costs rise, now need to take stock of what this new inflationary paradigm could mean for their industry. Many have begun to do so, while looking for investment strategies that can help alleviate inflation’s potentially negative impacts on their business.
Given how much time has passed since inflation was front and center, our multi-asset team ran a regression analysis of different asset classes in which insurers have historically invested, going back to the early 1970s (Figure 1). This analysis shows the beta (correlation) of each asset class to the CPI, while holding real growth constant over the time period used. Directionally, the results are intuitive and likely what you would have expected. However, the relative betas for each asset class, particularly for lower-volatility insurance reserve assets, clearly demonstrate the need for most insurers to have some level of inflation protection in their investment portfolios.
Figure 1
What about asset classes that may stand to benefit from rising inflation? While natural resources equities and commodities, for example, may indeed be poised for strong performance in the next few years if inflation persists, these assets present other investment considerations for…
To read more, please click the download link below.
Expert
Related insights
Showing
of
Insights Posts
Setting ROAs for 2025: A guide for US corporate and public plans
Continue reading
16
min
Whitepaper
2025-11-30
Trump win likely to accelerate macro trends already in motion
Continue reading
5
min
Article
2025-11-30
Rebalancing a multi-asset portfolio: A guide to the choices and trade-offs
Continue reading
Whitepaper
2025-12-31
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
Setting ROAs for 2025: A guide for US corporate and public plans
How are pension plans adjusting their ROA assumptions? And how do those assumptions line up with our long-term capital market assumptions? Find out in this annual update.
16
min
Whitepaper
2025-11-30
What do the US election results mean for investors?
The US election results could have significant implications for the global economy and capital markets. Our panel of experts provides a thorough analysis of what happened and explores potential market impacts.
Video
2025-11-30
Trump win likely to accelerate macro trends already in motion
The US election results could have significant implications for the global economy and markets. To help you understand these changes, US Macro Strategist Mike Medeiros provides a thorough analysis and discusses the potential market impacts.
5
min
Article
2025-11-30
Monthly Asset Allocation Outlook
Wondering how to reposition your portfolio amid election-related uncertainty? Explore the latest monthly snapshot of our Multi-Asset Team’s asset class views.
5
min
Article
2025-11-30
Why more corporate plans should pass on pension risk transfers
LDI Team Chair Amy Trainor explains why she believes a pension risk transfer may, in many cases, not be the best choice for fully funded plans from a cost/benefit standpoint.
5
min
Article
2025-11-30
Insurance Quick Takes: Navigating the Principles-Based Bond Definition Project
In our latest Insurance Quick Takes video, Tim Antonelli breaks down the NAIC’s Principles-Based Bond Definition (PBBD) project and implications for US insurers.
6
min
Video
2025-10-31
Quarterly Market Review
A monthly update on equity, fixed income, currency, and commodity markets.
18
min
Whitepaper
2026-10-31
Corporate pension trends and topics: What’s top of mind for 2024?
Members of our LDI Team address a range of topics that US corporate plans will be thinking about in the coming year, from pension funding and accounting issues to portfolio diversification opportunities.
Article
2025-01-31
Rebalancing a multi-asset portfolio: A guide to the choices and trade-offs
Many investors wrestle with portfolio rebalancing decisions, particularly in volatile environments. In this paper, members of our Investment Strategy Team argue for a well-structured rebalancing policy and share research on different approaches and common implementation considerations.
Whitepaper
2025-12-31
Mind the liquidity (and cost) gap: Revisiting a plan’s hedge-ratio approach
Members of our LDI Team take a fresh look at the process of setting and managing liability hedge ratio targets, including liquidity considerations that are top of mind today and the implementation toolkit.
Article
2025-06-30
URL References
Related Insights
Pre-election ideas for investors: Lean into what you know (not what you don’t)
Our expert offers investable ideas based on known macro and market conditions, rather than speculation.
Multiple authors