U.S. insurers are willing to take on more risk in 2024 with their outsourced investment management, with more than half expecting to allocate at least 20% to private assets in the next two years, according to a new survey from Conning.

In Conning’s third annual survey conducted with more than 300 insurance executives in November, 62% of respondents said their risk tolerance will increase in 2024 (down from 64% that replied that for 2023) despite concerns about inflation, volatility, fiscal and monetary policy and the impending presidential election.

Persistent inflation was the top concern among survey respondents. On a scale of 1, equaling no concern, and 4, equaling very concerned, the average level of concern regarding inflation was 2.88, down from 3.17 in 2022 and 3.23 in 2021.

In addition, 51% of respondents said they expect to increase their allocations to private assets in the next two years. The survey report did note that among those insurers who currently hold private assets, they currently allocate at least 15% to them.

Matthew Reilly, managing director/head of insurance solutions at Conning, said in a Jan. 22 interview that there was an interesting difference in the attitudes toward risk by survey respondents, Life and annuity providers had a more optimistic view, while property and casualty insurers were less sanguine.

“That translated into their views on risk tolerance and how they expected to evolve,” Reilly said. Rising interest rates over the past two years have also resulted in potential changes to asset allocations, he added.

When asked what changes they expect to make to their asset allocations in 2024, 63% of respondents said they plan to increase their allocations to investment-grade public fixed income, while 61% said they expect to increase their allocation to private equity, and 56% said they plan to increase their allocations to private credit/private placements.

When asked about their top investment concerns, the average score regarding investment returns and yields was 2.53 in the latest survey, well below the average 3.00 for the last survey.

The low interest rate environment of the past 15 years resulted in insurers moving to riskier assets in order to achieve returns, Reilly said.

But now, “we’re seeing more traditional core fixed income strategies, and that’s a big reversal from years past, (although) it doesn’t completely outweight the interest in private assets,” Reilly said.

“We still see the secular interest in private assets continuing, and I think that at this point in time, you are seeing it’s a little bit easier to make the algebra work for core fixed income,” he said.