As insurers struggle with persistently low interest rates, margins are compressed and pressure squeezes profitability and growth. The low-growth and low interest rate environment is likely to continue for some time.
Insurers are also concerned that the Fed’s easy money policy of near-zero short-term rates may overheat certain parts of the credit markets that could fuel inflationary pressures and push short-term rates to 5% by 2017.
In order to meet financial targets, insurers are evaluating new sources of investment income as the prolonged, slow market recovery expands the hunt for yield across maturities, markets and asset classes.
Investment solutions being considered involve combining select credit strategies. These include liquid loans, EM debt and real asset strategies, such as infrastructure assets and direct real estate, which can provide stable income in weak markets and provide equity-like upside in recoveries.
This paper examines trends that are shaping asset allocation strategies for insurance companies while taking into account their unique objectives and constraints.  It also highlights various asset classes that can offer attractive yields, durations and diversification benefits.