Opportunities for insurers in a shifting global context

Much has changed since our last update. For insurers, the resulting higher yields present opportunities. Our most recent global strategy day occurred shortly before the United States introduced tariffs. Nonetheless, our committee confirmed its conviction regarding a cooling trend in the global economy, while increasing our probability of a recession. Had we held the meeting a week later, it is likely that our committee’s views would have remained broadly similar: a cooling global economy will likely generate more Central Bank reactions over time, given that fiscal policy levers are constrained.

The actions of the US administration have recalibrated a previously understood policy relationship. In the past, US administrations derived confidence from rising equity prices and commonly focused on equity returns as indicators of policy success. The previous result was an alignment between policy and return that supported both US financial assets and the Dollar. The current US administration, however, has focused on reshaping global terms of trade, thus reversing the paradigm and generating an economic shock. Shock creates uncertainty, and from uncertainty comes risk premium, leading to rising yields. For insurers, higher yields present more attractive opportunities closer to home. As a result, we note an increase in insurers evaluating opportunities to rotate into more attractive valuations.

The case for credit

We have long argued the case for credit with our insurance clients, and we continue to do so even in this changeable environment. Anchoring our view is the broad observation that the public sector balance sheet has weakened significantly over the last 50 years, as G7 countries have leaned into markets to generate expansion. This strategy had advantages: the growth it created produced returns that offset the costs of an ageing population. The disadvantage lay in the steady erosion of public sector balance sheet quality, and with it an increased sensitivity to refinancing risk. By comparison, private sector balance sheets are robust and performing well: we note trailing 12 month EBITDA for global investment grade running at 5.5% for the March quarter. Investment grade cashflow generation (as measured by EBITDA) has only improved since 2023, when it reached a low of 2.0% for the June quarter. Looking ahead, we see credit fundamentals well-positioned to manage the impacts of a cooling economy, though there is a need to be more selective in weaker ratings buckets.

Corporate risk and market spreads

Recent events have changed the available return on corporate risk. We see US corporate spreads trading around 30% wider than both 1-year and 5-year tights. For A+ rated US credits, current spreads are 35% wider than both 1 year and 5 years tights. European markets have seen less dislocation than their American peers, but that does not mean spreads are unappealing in absolute terms. Consider A+ rated European credit, which offers a 96bp spread, which is appealing compared to an 88bp spread in USD Corporate A+ credit. In our view, these higher return streams offer an attractive entry point into credit.

Next steps

It is for this reason that we have focused this edition of the Insurance quarterly around access products. For clients operating under Solvency II and IFRS 9, these products offer investors the ability to efficiently diversify portfolios. We’ve recently written extensively on developments in this area, and have included our recent whitepaper on SPIRE, which may be of interest. Please let your J.P. Morgan Asset Management representative know if you would like to discuss any of these in further detail. 

Source: J.P. Morgan Asset Management, April 2025.