In our latest quarterly paper, we provide analysis of shifting market outlooks and regulatory developments. Our aim is to cut through the complexity and highlight where the true opportunities may currently lie for insurers, blending the investment market, economic and regulatory backdrops.
In this edition, we explore the evolving drivers of insurers' investment strategies, spanning global market dynamics in equities, bonds, and yields, alongside the rapid expansion of investment-grade private credit in a $1.5 trillion market. This trend feels particularly relevant: over the past 15 years private debt has grown at an unprecedented pace, fueled largely by senior direct lending to medium-sized, sub-investment-grade corporate borrowers. We set out the case for investing in this burgeoning opportunity, but with an investment grade focus, and outline the practical steps needed to capitalize on its long-term potential.
We also examine how disciplined currency management can help reduce hidden risks in assets vs liabilities while strengthening governance frameworks. By assessing the role of unhedged assets in portfolio construction and analyzing currency exposures on an asset class basis, we provide an overview of implementation considerations and available instruments. These insights can help insurers design safe, efficient foreign exchange management programs that reduce unnecessary risks and enhance balance sheet resilience across assets and liabilities as well as surplus.
In addition, we take a close look at several key industry updates from the past quarter including the latest Solvency II changes affecting capital requirements within Europe, as well as developments in the UK and Bermudian regimes. We cover the adjustments to the symmetric equity capital requirement and limited movement in volatility measures and mark important developments across regulatory geographies. We assess their implications for insurers' portfolios, with recommendations provided.