We expect changes in the economy, markets, regulatory environment, and future priorities (like ESG considerations) to affect the way insurers invest.
Insurers tend to be sticky, long-term owners that are likely to remain invested even as central banks raise rates and unwind their holdings. They’re likely to keep cash flowing into the market given that they will need to continue investing insurance premiums regardless of the market environment. These dynamics should help dampen volatility and pave the way to a new equilibrium in the credit market as central banks back down. That said, given the size of insurers’ portfolios, a small change in their allocations can have a large impact on the markets.
Because insurers provide significant liquidity to the market, it’s important to understand their investment philosophies, constraints, and objectives. While we do not try to time the market and are laser-focused on generating alpha through consistent selection regardless of the market environment, we see the supply-demand dynamic in credit as a key input alongside fundamental and relative-value analysis.
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