The Markets February 14, 2025

Insurers Seek Private Market Exposure, Take More Risk in Portfolios

According to Conning’s annual insurance investment risk survey, insurance investors are far less concerned about inflation than in recent years and are piling into private assets.

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Insurance companies are interested in taking more risk in their portfolios, according to the latest Conning Inc. survey of investment decisionmakers at property and casualty insurers and life insurers, released Tuesday.

The survey of 310 insurance investment executives, conducted in November 2024, solicited insurers’ top-of-mind concerns, approaches to asset allocation, and overall views on markets and investment risk.

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“2024 was a relatively positive year for the market,” says Matt Reilly, Conning’s head of insurance solutions and author of the report summarizing the survey’s findings. “Insurers have shown an increased willingness to take risk in their portfolio.”

Private Assets 

Insurers over the past few years have increasingly increased their allocations to private market assets. 

“Our survey results continue to show an interest in insurers looking at private assets to be a part of their portfolio,” Reilly says. “That’s a trend that we’ve been seeing over the past several years.”

The survey found that cohorts representing approximately 10% of respondents reported having between 0% and 5% of their portfolios in private assets. This number was up from 6% in last year’s survey and is projected to shrink back down to 6% in the next two years as early adopters increase their allocations out of that range.

Cohorts that already have larger alts allocations reported they expect to increase them, according to the survey. The 12% of respondents who reported having 20% to 25% of their assets in private markets could nearly double to 21%.  Approximately 7% of respondents said their company held 25% or more of its assets in alts. Over the next two years, this cohort is expected to grow, also to 21% of the total.

“If we’re talking to a [property and casualty investor] that maybe, a couple of years ago, had no allocation to, say, private placements or private credit or real estate, maybe now [they have worked] that allocation up to 5% or 8% of their portfolio, and maybe they’re now thinking how to make it 8% to 10% over the next couple of years,” Reilly says.

Annuity and life insurers, on the other hand, tend to have longer duration, allowing for even more allocation to private markets.

“Whereas on the life and annuity side, those allocations have been much higher for much longer,” Reilly says. “We’re seeing companies that are thinking, ‘OK, we’re at 15%, 20%, 25%; how do we add the next 5%, 10%, 15% to those allocations?’”

Insurers reported their portfolios have the right amount of liquidity, and they generally did not list liquidity as a top concern when employing private market strategies. Property and casualty insurers, with shorter-term cash-flow needs, have been less likely to adopt private markets allocations, but even they are looking to increase them in a mindful manner, Reilly says.

“We’ve seen insurers [that] feel confident that their portfolio has the right amount of liquidity,” Reilly says. “They think that they are well positioned to support their insurance operations with the cash flows coming off their portfolios but are definitely mindful of it when they’re thinking about their overall private allocation.”

Investment Concerns

As in 2023’s survey, insurance investors are optimistic about the overall market, although slightly less than last year: In the 2024 survey, 77% of insurers reported being optimistic, down from 80% last year.

Insurers’ most significant concern for the coming year was the domestic political environment, while inflation took a backseat. In recent insurance surveys, inflation had been ranked as insurers’ top concern, but it fell to seventh place for 2025.

In addition to the domestic political environment, respondents ranked their top concerns as follows: investment returns/yield, market volatility, geopolitical events, impact of artificial intelligence/model risk, changes in investment-related regulations, inflation, impact of fiscal policy, impact of monetary policy and liquidity risk.

Insurers reported being keen to take on more risk, with 59% of survey respondents saying they anticipate their firms will do just that this year. Approximately 19% said their firms’ investment risk will stay the same, while 22% said risk levels will decrease.

Outsourcing Investments 

Insurers are also increasingly using external managers to manage insurance assets and for other tasks, like asset allocation and risk management.

Those surveyed reported multiple reasons for outsourcing. Approximately 56% said outsourcing some or all of their investing was a cost-saving decision. A similar share, 55%, cited the need for outside expertise for risk management or strategic asset allocation. Half of respondents said external managers were needed for their expertise in a particular investment strategy, while 38% said they relied on a consultant for a recommendation, and 28% reported that outsourcing provides better access to investment strategies.

The Markets February 14, 2025

Corporate Pensions Continue Funding Surplus Rise in January

Many companies with pension funds in surplus are choosing to outsource the investment management of their portfolios or to offload their plan liabilities to insurers.

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The average funding ratio of U.S. corporate pension funds continues to exceed 100% after growing further in January, pushing to a recent high.

According to Milliman, which tracks the funded status of the largest 100 U.S. plans through the Milliman 100 Pension Funding Index, the funding ratios of these plans rose to 105.8% at the end of January, up from 104.8% the month before. The gains are largely due to a strong equity market, as well as little change in discount rates.

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This is the highest funded status level in 27 months, according to Milliman. Markets returned 1.19% in January, increasing plan assets by $9 billion to $1.308 trillion at the end of the month. Monthly discount rates, used to value plan liabilities, increased by one basis point, to 5.60%, reducing plan liabilities from $1.240 trillion in December 2024 to $1.237 trillion in January. 

“The funded status surplus of the Milliman 100 plans reached a 27-month high at the end of January—the perfect start to the year as plan liabilities declined while plan assets grew after market gains exceeded expectations,” said Zorast Wadia, actuary at Milliman, in the firm’s monthly report.

Many companies with pension funds in surplus are choosing to outsource the investment management of their portfolios or to offload their plan liabilities to insurers.

“With Fed[eral Reserve] rate cuts still a possibility this year, prudent asset-liability management remains a key directive for plan sponsors to preserve the funded status gains achieved thus far,” Wadia said.

According to Agilis, plan sponsors saw funded status gains of from 1% to 3% in January. With 2025 expected to be a volatile year, Michael Clark, managing director and chief commercial officer at Agilis, wrote in a note that corporate plans should lock in their gains and offload their pension liabilities.

“We anticipate that 2025 will continue to be volatile, so plan sponsors would do well to lock in gains through their investment strategies and pursuing pension risk transfer strategies,” Clark said.

According to Mercer, which tracks the pension funded status of S&P 1500 companies, these funds saw their solvency increased to 110% in January from 109% in December 2024. Plan surpluses increased to $158 billion in January from $135 billion last December.

Wilshire, which tracks the funded status of corporate plans in the S&P 500, found that the funding surplus increased by 1.8% in January, to 105.4%, the highest funded status level tracked by Wilshire in more than a year, up from 103.6% at the end of December. Over the trailing 12 months, funded status increased by 8.8%.

LGIM America, which tracks the health of a hypothetical corporate defined benefit plan through its Pensions Solutions Monitor, finds that a plan with a 50/50 stock/bond asset allocation saw its funding ratio increase to 112.6% in January from 111.1% last December.

Aon, which tracks the funded status of pension plans of companies in the S&P 500, reported that the funded status of these plans increased to 103.4% in January from 102.5% in December. Plan assets increased by $12 billion, while liabilities decreased by $1 billion.

According to WTW, which tracks the funded status of U.S. retirement plans through its WTW Pension Index, funded status rose to its highest value since mid-2000. In January, the index rose to 124.6, up from 122.2 in December, as strong investment returns offset an increase in liabilities. The index, based on the performance of a hypothetical plan with a 60/40 portfolio, saw investment returns of 2.2% in January. Liabilities increased by 0.2%, due to changes in discount rates, resulting in a 2.0% increase in pension funded status.

October Three Consulting tracks pension finances for two hypothetical funds: Plan A, with a 60/40 allocation, and Plan B, with a 20/80 allocation. The firm found that the funding of Plan A improved more than 1%, while Plan B improved less than 1% in January.

Interest Rates

Interest rates have long been an uncertainty for plan sponsors. Since the Federal Reserve started raising rates in 2022, higher interest rates have contributed to an increase in corporate funded status. Pension surpluses should not be affected by further rate cuts in the near future: Bond markets now predict no cut to the benchmark federal funds rate until December 2025. The strong Consumer Price Index report this week, showing a 3% increase in inflation driven by higher food and energy prices, reinforces the sentiment that the Fed is unlikely to resume rate cuts soon.

“The Federal Reserve paused its campaign of interest rate cuts resulting in minimal month-over-month changes in corporate bond yields—used to value corporate pension liabilities,” said Ned McGuire, a Wilshire managing director, in a statement. “The positive returns across asset classes helped maintain the month-end aggregate funded ratio estimate above 100%.”

Still, there are many uncertainties ahead for plan sponsors, such as the economic impact of federal policies, including tariffs, as well as the direction of interest rates. 

“Markets will be closely watching for the economic impact of the recently announced tariffs and other potential executive actions,” said Matt McDaniel, a partner in Mercer’s wealth practice, in a statement. “The Fed continues to take a ‘wait and see’ approach with interest rates, leaving plan sponsors a lot of uncertainty to process to start the new year.”

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