Asia’s insurers prioritise liquidity over yield as private market allocations rise

Key Points

Speaking at AsianInvestor's Insurance Investment Briefing in Hong Kong on September 15, executives argued that the next phase of insurance investing will be driven as much by liquidity management, hedging costs and liability matching as by the search for additional yield.

As private credit markets expand and geopolitical uncertainty persists, insurers are increasingly evaluating investments through the lens of overall risk and balance-sheet resilience. The shift reflects a growing recognition that private-market investing creates new challenges for insurers, particularly around liquidity management, foreign-exchange hedging and asset-liability matching.

According to an International Association of Insurance Supervisors (IAIS) report, insurers are showing growing interest in private credit, a market that had reached around $2.1 trillion globally by 2023 and has continued to expand rapidly. The IAIS, in its 2025 mid-year update, also highlighted both geoeconomic fragmentation and insurers’ growing investment in private credit as areas requiring closer monitoring by regulators and investors alike.

In line with that finding, insurers are increasingly evaluating investment choices through an integrated balance-sheet framework that weighs returns against capital consumption, liquidity needs and liability-matching requirements, and looking at strategic asset allocation, foreign-exchange hedging and liquidity management through a single lens.

Consequently, chief investment officers are adopting integrated frameworks that weigh returns against capital consumption and cash-flow needs. Decisions such as shifting assets from public investment-grade bonds to private credit now require a broader assessment of liquidity implications, hedging costs and stress scenarios.

The challenge is particularly acute in markets like Hong Kong, where many liabilities are denominated in US dollars and high-net-worth insurance products have become an increasingly important growth segment.

Panellists noted that wealthy policyholders tend to be more financially sophisticated and often have access to alternative investment opportunities and premium-financing arrangements. That can make investor behaviour more sensitive to changes in market conditions, creating new asset-liability management challenges for insurers.

Despite these complexities, insurers continue to see opportunities in private market assets that can offer attractive spreads without materially increasing risk.

OPTIMISING SPREAD

According to Tony Appiah, client portfolio manager at Nuveen, insurers would better serve their interests by focusing on assets that provide compensation for illiquidity, structuring and complexity risk rather than simply pursuing the highest yields. “Don't just think about maximising yield. You really have to focus on optimising that spread,” he said.

He pointed to sectors such as private asset-backed finance, infrastructure debt and investment-grade private placements as areas that continue to attract interest from insurance investors.

Regulatory developments in Europe, Singapore and Hong Kong are also increasingly supportive of investment in infrastructure and other productive assets that contribute to economic growth.

At the same time, Appiah also cautioned against becoming unintentionally concentrated in popular themes such as artificial intelligence. Appiah said investors increasingly need to look past traditional asset-class labels and examine whether holdings are ultimately exposed to the same underlying economic drivers, and ask: “Do I own different assets, or do I own assets with truly differentiated economic drivers?” he said.

STAYING DISCIPLINED

For long-term investors like insurance companies, the panel’s strongest message may have been the value of discipline rather than innovation.

Shiuan Ting van Vuuren, chief investment officer HK & Private Wealth at Sun Life, highlighted the importance of robust risk governance, prudent risk limits, strict ALM discipline and proper portfolio diversification.

“None of that may sound exciting, but it is precisely what enables an insurer to navigate market cycles and maintain balance sheet resilience,” Van Vuuren said.

She added: "There will always be market noise, whether it's geopolitical risks, AI trends, private credit headlines or central bank policy shifts…Our job here isn't to predict the headlines—that’s impossible. Our job is to understand what those headlines could potentially do to interest rates, inflation and currencies, and how that affects our asset allocation…and building a portfolio to endure every cycle that follows.”

As private market exposure grows and geopolitical uncertainty persists, insurers are growing increasingly determined to ensure portfolios remain liquid, diversified and capable of surviving the next market shock and that yield enhancement does not come at the expense of balance-sheet resilience.