Knock-on effects from global developments such as tariffs imposed by US president Donald Trump and multinational investment company BlackRock withdrawing from the Net Zero Asset Managers Initiative will affect asset management among insurers in Asia, according to Ortec Finance’s Mr Saiyan Raja. With such shifts taking place, he believes asset managers will need to reassess risk appetite and growth expectations.
When he was asked about some areas in Asia insurers have been investing in over the past year, Ortec Finance investment solutions director Saiyan Raja was keen to point out private credit, which he likened to a train rolling on “at full speed, with the appeal to insurers as strong as ever”.
“With yields across public fixed income hovering around all-time highs, investors are looking for better value in private markets,” said Mr Raja when he spoke with Asia Insurance Review.
“Private credit has a proven track record of being a sound alternative with their attractive illiquidity premium, enhanced protection and low correlation with other asset classes.”
The figurative icing on the cake, he said, was the “often-favourable capital treatment under some riskbased capital (RBC) regimes”. He said, “For instance, private debt has a counterparty risk charge and does not attract credit spread or interest rate risk charges under RBC2, like their public counterparts.” Singapore and some countries in Asia including Taiwan and South Korea, according to Guy Carpenter, are under the RBC2 framework, which requires insurers to maintain certain capital adequacy and solvency ratios.
Uncommon areas of investment
According to Mr Raja, an “uncommon but interesting theme” in assortment management among insurers is the new focus on blockchain-based tokenised assets.
“Tokenisation is the process of using blockchain technology to convert an asset into digital form. Investing in tokenised alternative assets such as real estate and private assets has been much talked about in 2024, owing to improved liquidity and operational efficiency,” he said. In 2024, the Monetary Authority of Singapore announced plans to advance tokenisation in financial services, a move which further indicates the growing interest in the asset class. Malaysia’s Securities Commission and Hong Kong’s Monetary Authority also announced initiatives to encourage the adoption of tokenisation.
Recent trends
As the world is becoming increasingly complex, insurers’ investment portfolios have begun to include esoteric assets, Mr Raja said.
He said, “These assets are often more illiquid with complex structures, thus requiring good risk management. We saw a greater focus on reporting and supervision in 2024, a trend that will no doubt continue in the years to come.”
Mr Raja also noted the role of AI in numerous innovations in the insurance industry, including in policyholder experience and company profitability.
“The more recent trend of using AI agents has also reached the insurance investment portfolio optimisation space,” he said.
“Using AI to derive a more optimal strategic asset allocation by training machine learning algorithms on infinite training data from stochastic scenarios has proven to be successful. The innovation is even more valuable given insurers are using a combination of increasingly complex constraints in the optimisation process.”
When asked about ESG, Mr Raja indicated that the focus has continued, with insurers in APAC taking such considerations into investment decisions. For instance, he noted that emission disclosures were becoming more important.
“As data improves, the balancing act of seeking a good risk/return trade-off and prioritising ESG factors is evidently more pertinent. Regulators are reacting to the increased risks of climate change with a focus on both disclosures and top-down analysis,” he said.
Insurers are now performing stress testing to understand how particular climate scenarios affect [the] balance sheet.”
ESG knock-on effects
Said Mr Raja, “The term ESG is politically charged in the US, which could lead to knock-on effects onthe insurance industry globally. With (US) President Trump signing an executive order withdrawing the US from the Paris Climate Agreement (again), and BlackRock announcing it would be leaving the Net Zero Asset Managers Initiative, the future appears bleak for ESG in its current form.”
He noted that there would be consequences of these decisions, one of them being more differentiation from investors.
The future
When asked what strategic shifts he forecast for the coming year in asset management among insurers, Mr Raja was quick to note that there will be an increased focus on due diligence and enhanced risk management, as many commentators expect the private credit market to continue its double-digit growth.
He also indicated that the regulatory updates from the National Association of Insurance Commissioners in the US aimed at better managing the risks of private credit may curb insurer appetite there. While he conceded that the improved reporting and supervision were necessary, he noted that the trend might spread to insurers in APAC.
According to Mr Raja, the Federal Open Market Committee might also be a factor in any upcoming strategic shifts in asset management, as it would result in whether interest rates would be cut with quantitative easing (QE) “back on the menu”.
He said, “Should that be the case, the public versus private credit debate will have a new twist in its tail.”
According to the Singaporean online platform for share trading POEMS, QE is “a monetary policy used by central banks to stimulate the economy by increasing the money supply”. POEMS also states that QE is usually used when “interest rates are at or near zero, and traditional monetary policy tools are no longer effective”.
Implications of tariffs
A major player in any strategic shifts in asset management, according to Mr Raja, is also “the implications of the tariffs imposed by President Trump and the knock-on effects on APAC”.
“Many economies in the region are exposed to US exports, so a global trade war will only exacerbate uncertainty and volatility,” he said.
“Insurance asset managers will need to reassess risk appetite and growth expectations to determine whether the traditional regional bias remains appropriate and additional risk management such as currency hedging is required.”
Article link: https://www.asiainsurancereview.com/Magazine/ReadMagazineArticle/aid/49123/Asia-Global-developments-will-impact-insurer-asset-management
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