BlackRock says insurers expect to keep ramping up private bets

Insurers overseeing $23 trillion plan to add even more to their private market holdings as part of a strategy to smooth long-term returns, according to a BlackRock Inc. survey.

Of 463 senior insurance executives surveyed by BlackRock, 93% said they expect to increase their exposure to private assets in response to market movements over the next 12 months. Investment-grade private credit, including infrastructure debt and private placements, remains a preferred asset class.

Only 3% expect to reduce private investments, according to the survey published Monday.

Insurers have been embracing alternative assets for years, and private equity firms have been buying insurance firms to fuel the growth of private credit. The expansion has drawn scrutiny from lawmakers, who have flagged potential risks in the $1.7 trillion market, including defaults, potentially inflated ratings of private debt instruments and fewer reporting requirements compared to banks.

For their part, insurance executives said they’re enticed more by the potential for diversification and lower volatility than they are by the prospect of higher returns at the moment, BlackRock said in the survey. Their top concern about picking private assets is their liquidity.

“The appetite for private assets has remained persistently high,” Mark Erickson, global insurance strategist of BlackRock’s financial institutions group, said in an interview. “This allocation or shift to private markets is more of a secular, structural shift.”

While larger insurance companies, especially life insurers, have been pouring money into private credit for years, some smaller firms are shifting now, too — adding broad baskets of alternative assets, the report found.

Insurers turned more to the private markets in the aftermath of the 2008 financial crisis, when interest rates were near-zero. That raised questions about whether they would cut down on those holdings in a different environment, according to Erickson.

The past few years of higher interest rates have provided a “resounding answer” to those questions, with insurers adding more private assets rather than paring back, he said.

“This is not a low-rate driven shift,” Erickson said.

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