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Effective portfolio management for insurance companies

Fluctuating interest rates, volatile risk premiums and rising inflation are some of the issues driving increased complexity for insurance investment portfolios. That’s why many insurers are looking for better ways to optimize their investments, increase income, grow surplus and properly align risk.

We believe that with the right expertise and structure, efficient operations, effective execution and lower costs¹, an insurance company’s investment program can grow enterprise value and provide a competitive advantage.

Our role goes beyond seeking to simply beat a benchmark, but working with our clients to customize investment solutions to derive greater value from the investment portfolio through insurance-specific investment ideas, improved implementation, operational support, and the alignment of your portfolio with your specific geographic, regulatory, rating agency, liability, and liquidity requirements.

Five common investment challenges facing insurers

Every insurance company and investment strategy is unique, however in our experience there are five common challenges. We can help you address these challenges by leveraging our deep expertise across all asset classes, our global scale, extensive manager research and dedicated team of insurance consultants.

National and international regulations are complex and make it difficult to construct compliant investment portfolios while properly optimizing risk and return. If you operate in multiple jurisdictions, it’s even more challenging to balance the different requirements within a central investment strategy. We work across all major domiciles and have extensive experience working with multi-national insurance companies.

Economic cycles are becoming shorter and more extreme, with inflation being a primary concern for insurers today. Insurers must position their investment portfolios for a range of outcomes in a volatile market environment. We believe diversification of asset classes is important and requires broad coverage of managers and asset classes that can generate risk-adjusted returns across the market cycle.

Sustainable investment and ESG are a set of issues increasingly driven by regulators and rating agencies across the globe. The appropriate integration of these measures and the need to develop robust reporting for internal and external stakeholders is critical in today’s environment. Our dedicated sustainable investment team can help you stay ahead of these challenges.

Alternative investments provide a potential opportunity to guard against the volatility of equities, hedge against inflation, and seek better returns through illiquidity. Investing in alternatives and private markets requires deep expertise, research, strong relationships with managers and access to opportunities. Our private market specialists can help you build exposure to these asset classes.

As insurance investment portfolios become more complex, pressure on internal resources increases. Finding the right partners and solutions to leverage your internal capabilities while maintaining strategic control of key decisions requires a customized approach for each client. Leveraging our breadth of resources and scale can help focus your team on the most impactful things.

Incorporating sustainability into insurer portfolios

The insurance industry is taking action on environmental, social and governance (ESG) considerations through ventures such as the UN Environment Program’s work on Principles for Sustainable Insurance. Internal and external stakeholders are increasing their scrutiny of ESG issues.

Whether you’re focused on risk management, regulatory compliance, or identifying potential investment opportunities, you will need to consider sustainability issues. For example, climate change poses significant risk on asset owners of all sizes around the world. We provide a number of tools that can help you understanding the potential impacts, benchmark against peers and implement changes.

Although this issue is complex and challenging, there are substantial growth and income opportunities in sustainable investments. We have worked with large insurers to build a complete, balanced solution, which fuses the objectives of seeking financial returns with acknowledging risks in a transitioning economy. Some of the investment strategies range from facilitating renewable power infrastructure and energy-efficient buildings to financing innovative green technologies and addressing crucial social issues such as inequality. We offer a variety of sustainable investing solutions for insurers.

Sourcing new ideas and innovation through alternative asset classes

When you’re seeking greater diversification and higher returns, private market asset classes, such as infrastructure, real-estate and private debt, could play a greater role in your portfolio. Private debt is increasingly becoming a core allocation for insurers, supported by asset classes such as middle market lending, structured credit and specialty finance.

Understanding these asset classes and how they can meet your needs requires specialized knowledge, manager selection capabilities, access and scale to be effective. For smaller insurers, being able to pool assets with other institutional investors through our investment solutions could open new investment markets at an affordable cost. Our specialists around the globe source and implement alternative investment solutions for our clients.

Common questions about portfolio management for insurance companies

Every investment program has its own unique set of objectives and often requires internal and external resources to manage it. We flex our services to suit your requirements, creating a customized approach that works for you, no matter the size of your team. Depending on your needs, you may choose one or a combination of the following:

Digital: Do it yourself by accessing our digital manager research platform, MercerInsight^®.
Consulting: Get help, with our comprehensive investment consulting services.
Delegated: Have us implement and manage your investment strategy.

When you engage us, we operate as an extension of your team. We can guide you on your strategy and allocation, help you source new ideas and innovation through alternative markets and help you integrate ESG, diversity, equity, and inclusion (DEI), and impact investing considerations to target sustainably. We can also manage the implementation for you, based on your desired direction. You will always maintain control of key decisions.

We use an open-architecture platform, not affiliated with any one asset manager, giving us a true independent perspective. This allows you to customize solutions to match your specific requirements regarding returns, liabilities or liquidity. The platform also helps you execute your strategy, through your in-house team, external managers, or a combination of both.

Alternative asset classes, including private markets, can offer insurers many benefits — returns that are less correlated to public markets, important sources of diversification, and ways to invest in and support the real economy. However, accessing and maintaining these strategies is not straightforward. There are layers of complexity and cost through origination, due diligence, legal work and relationship building — all before any investment has been made.

We can help you navigate these challenges in a way that suits your strategy and requirements.

Consulting advice: You keep control of your investment strategy and implementation, while we provide research, operational, legal and due diligence support.
Directed implementation: This approach lets you keep control of investment decisions and manager selection, deploying and implementing strategies through our platform.
Delegated implementation: Our specialists work with you to create a bespoke investment strategy and approach, implemented through our platform using segregated mandates or pooled funds.

Our investment specialists around the world place importance on integrating sustainable investment considerations when defining strategies, monitoring and selecting managers, and implementing selected strategies.

We have been at the forefront of sustainable investment strategies for more than a decade. Our large team of specialists across the globe can advise you on all aspects of ESG investing, DEI investing and impact investing. Our aim is to help you construct a complete strategy and portfolio designed to protect your company against risks and capture long-term opportunities. We also aim to help protect your company’s reputation.

We are committed to embedding a focus on sustainability across our advice and implementation work. To that end, we are a signatory to the United Nations’ Principles for Responsible Investment and our ESG beliefs and Sustainable Investment Policy, both of which are freely available to help you understand how we operate in this field.

We have also published detailed research modeling the path to a net-zero economy and its implications for investors’ portfolios.

How we helped a large insurer adjust its portfolio operating model

The issue:

A global marine insurer needed to adjust to a new operating model. The process highlighted the company’s limited internal resources and inability to execute and nimbly adapt its investment strategy.

The in-house team wanted to retain control of manager selection but also explore new investment opportunities that capture yield, including moving into private markets.

The solution:

We began working with the insurer in a consultant capacity before progressing to an implemented consulting and discretionary delegated asset allocation relationship. The insurer was able to retain its existing fund managers while expanding and diversifying with managers we helped find.

We introduced detailed data and risk analytics, which enabled the insurer to enhance its governance structure. This also helped simplify and streamline the company’s operating model across multiple group entities and reduce costs.

Investment solutions to suit your needs

Implementation and OCIO

We can help you define, develop and implement your investment strategy by addressing areas such as governance, risk, sustainability and diversification. We flex our services to suit your needs and help you achieve your investment goals.
Sustainable investments

We help you build a sustainable investment strategy that integrates environmental, social and governance (ESG) considerations; diversity, equity and inclusion (DEI) factors and seeks an optimal mix between positive change and favorable returns.
Alternative investments

Leveraging our existing relationships with hundreds of asset managers around the world, we can help you identify and source new investment strategies, opportunities, ideas and innovations across private markets and hedge funds.
Strategic research

Become a member of the MercerInsight^® Community today to get access to strategic research from hundreds of thought leaders around the world, including Mercer and third-party publishers. It’s complimentary and easy to join.
Asset manager research

By subscribing to MercerInsight^®, an alliance with eVestment, you can gain access to data, analytics and our forward-looking research on asset managers and thousands of investment strategies across both public and private markets.
Managing investment risk

Our Mercer Sentinel team can help you conduct due diligence and mitigate operational risks across your portfolios and strategies. We assess asset managers, custodians and other service providers to help you deliver on your governance objectives.

Leverage our breadth and depth

$17.5T

US $17.5 trillion in global assets under advisement¹

$617Bn

US $617 billion in global assets under management²

11K+

More than 11,000 investment strategies rated³

¹ June 30, 2024. The assets under advisement data (AUA Data) reported here include aggregated assets under advisement for Mercer Investments LLC [and its affiliated companies globally (Mercer)]. The AUA Data has been derived from a variety of sources, including, but not limited to, third-party custodians or investment managers, regulatory filings, and client self-reported data. Mercer has not independently verified the data sourced from third parties in compiling the AUA Data. Where available, the AUA Data are provided as of the date indicated (the Reporting Date). To the extent information was not available as of the Reporting Date; information from a date closest in time to the Reporting Date, which may be of a date more or less recent in time than the Reporting Date, was included in the AUA Data. The AUA Data include assets of clients that have engaged Mercer to provide ongoing advice. Global AUA includes clients that have engaged Mercer to provide project-based services at any time within the 12-month period ending on the Reporting Date, as well as assets of clients that subscribe to Mercer’s Manager Research database delivered through the MercerInsight® platform as of the Reporting Date.

² December 31, 2024. The assets under management data (the AUM Data) reported here include aggregated assets for which Mercer Investments LLC [and its global affiliates] provide discretionary investment management services as of the dates indicated. With respect to certain commitment-based private funds managed by Mercer Investments LLC or its global affiliates, the AUM data includes committed but uncalled capital, which may also be reflected in client assets otherwise managed by Mercer Investments LLC or its global affiliates. The AUM Data reported here may differ from regulatory assets under management reported in the Form ADV for Mercer Investments. For regulatory assets under management, please see the Form ADV for Mercer Investments which is available upon request by contacting Compliance Department, Mercer Investments 99 High Street, Boston, MA 02110.

³ September 30, 2024

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Our specialists are ready to help you manage, expand, enhance, or fine-tune your investment portfolio.

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Fees and savings are not guaranteed
Mercer cannot guarantee access to opportunities. Access is at the discretion of the investment manager.
Mercer does not provide legal advice. You should contact your attorney before making any decisions with legal implications.

Investment solutions and OCIO for insurance firms

Effective portfolio management for insurance companies

Five common investment challenges facing insurers

1. Complex regulatory environment

2. Economic movements and inflation risk

3. Incorporating sustainability

4. Illiquidity and complexity

5. Resource constraints or lack of expertise

Incorporating sustainability into insurer portfolios

Sourcing new ideas and innovation through alternative asset classes

Common questions about portfolio management for insurance companies

How can you support my internal investment team?

How can I access alternative asset classes such as private credit?

How can I integrate ESG, DEI and impact investing considerations?

How we helped a large insurer adjust its portfolio operating model

Investment solutions to suit your needs

Implementation and OCIO

Sustainable investments

Alternative investments

Strategic research

Asset manager research

Managing investment risk

Leverage our breadth and depth

It's all here: MercerInsight® Community

Introducing some of our team

Christopher Tschida

William Gibbons

Chris Bewley

Amit Popat

Related insights

Contact our insurance investment team