KKR Finds Insurance Industry Embracing a ‘New World Order'
New Macro Report,
"From almost any vantage point, the multi-year decline in interest rates since the Global Financial Crisis is having an unprecedented effect on the profitability and sustainability of the entire insurance business,"
To better understand how cognizant CIOs are of the risk in today's environment, McVey and his team, alongside KKR's Insurance Asset Management team, conducted a proprietary survey of approximately 50 large, well-capitalized insurance companies that are either existing clients of KKR or prospects of the firm. Collectively, participants surveyed oversee nearly
In his latest report,
- To combat today's challenging investment environment, insurance companies have begun to branch out into a variety of new products, including Structured Products, Alternatives, and Non-Investment Grade Debt. All told, total Non-Traditional Investments and Non-Investment Grade Debt now represent 26.4% of on-balance sheet investment assets for our survey participants, compared to just 17.4% in 2014.
- Within Structured Products, the survey reports greater demand by insurance companies for better capitalized and more transparent securitized investment vehicles, including CLOs, ABS, and CMBS, relative to the pre-Global Financial Crisis.
- Within the Alternative Investment arena, Private Equity allocations have nearly doubled to 2.4% since 2014, though Private Credit remains the largest absolute Alternative allocation at 5.6% of total allocations versus a 4.7% allocation in 2014. On the other hand,
Hedge Fundallocations fell sharply to just 50 basis points, down meaningfully from 110 basis points in 2014.
- Not surprisingly, life and annuity companies are much more aggressive allocators toward Private Credit and
Private Real Estate.
- Within KKR's property and casualty universe, there has been a significant increase in Non-Investment Grade Debt, which recently reached 8.4% versus 2.8% in 2014.
- Even though many survey participants believe long-term interest rates have bottomed, KKR and its survey respondents do not see insurance asset allocation returning to prior allocations any time soon.
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KKR is a leading global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic manager partnerships that manage hedge funds. KKR aims to generate attractive investment returns for its fund investors by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside the capital it manages for fund investors and provides financing solutions and investment opportunities through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about
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