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Mr. Miller joined Invesco in 2018. Prior to joining the firm, he served as a senior vice president with PIMCO's financial institutions group, where he focused on general account investments and risk-managed fund solutions for insurance clients. Mr. Miller previously spent nine years in variable annuity hedging and risk management, as well as insurance portfolio management and pension liability-driven investment, with The Hartford. He has been in the financial industry since 2001.
Mr. Miller earned a BS degree in actuarial science from the University of Nebraska. He is a Chartered Financial Analyst® (CFA) and a Fellow of the Society of Actuaries (FSA).
Through this article, Mr. Miller examines the evolving landscape of insurance investing in 2025, highlighting key market trends, regulatory considerations, and asset allocation strategies. He explores the challenges insurers face amid economic uncertainty, shifting interest rates, and geopolitical risks while identifying opportunities in public fixed income, private credit, and commercial real estate debt. Ultimately, Mr. Miller underscores the importance of a cautious approach in an increasingly complex investment environment.
As 2025 begins, Invesco believes this year will present insurers with a more challenging environment than 2024. Although the US election in November removed one major source of uncertainty, there remain a number of questions on investors’ minds looking forward. For example, will the Federal Reserve scale back on the easing cycle it’s embarked upon? Will tariffs bring about a new round of inflationary pressure? Will geopolitical conflicts bring risk assets under pressure? Inflation has come down significantly in recent years and global growth has held up reasonably well, but economic activity is decelerating as investors consider the various risks noted above. Against this backdrop, we believe insurers may find it more difficult to produce 2024-type investment returns.
Inflation has come down significantly in recent years and global growth has held up reasonably well, but economic activity is decelerating as investors consider the various risks noted above.
Turning to current market conditions, we have clearly seen a meaningful shift higher in fixed income yields in recent years, with the 10-year US Treasury yield rising another 50+ basis points (bps) in 2024 alone. While major central banks have begun reducing policy rates, investors are already reassessing how far policy rates can fall and how quickly that destination can be reached. Notably, the US Treasury market is pricing modestly higher long-term yields, which are more meaningful to most insurers. Meanwhile, spreads have tightened in the past year, producing all-in yields for US and UK investment grade exposure in the mid-5 percent context and European yields in the mid-3 percent context. While fundamentals are strong, we encourage caution on duration and spread duration as yield and spread risks currently appear to be asymmetrically skewed to the upside.
Beyond public fixed income, we believe insurers should continue building out or refining their private market portfolios as well. We favor private credit versus private equity, given attractive all-in yields, seniority in the capital structure, and reasonable spreads over liquid credit. Similarly, while commercial real estate (CRE) has been under pressure in recent years, the current environment offers attractive CRE debt yields – we believe this is an opportunity to enhance capital-adjusted returns.
Within private equity, we encourage caution. Substantial dry powder and high valuations make it a difficult environment from a technical standpoint, and with rates no longer hovering near zero, the return potential from deploying leverage is not as attractive as it was a few years ago.
We see a few opportunities within the real assets category; with commercial real estate potentially nearing a turning point, CRE equity represents a diversifying opportunity for insurers. For life insurers in the US, it may be even more compelling in light of the reduced capital charges implemented in recent years. We believe infrastructure will continue to be of keen interest to insurers as another source of diversification and steady cash flow generation, particularly outside the US; of note, some US municipal bonds can now be classified as infrastructure investments by European insurers, offering them a way to access their desired exposure in a more liquid format.
From a regulatory perspective, there are a number of items of interest in 2025. Global regulatory interest in reinsurance, particularly captive-related deals and those in offshore jurisdictions where transparency is more limited, will likely increase over time. Insurers will also need to adjust to new rules in the U.S. regarding asset-backed security residual tranches, bond definitions and associated reporting, and likely changes to the capital charges methodology for collateralized loan obligations.
In summary, we expect 2025 to be somewhat more challenging than 2024 for insurance investors. Investment opportunities certainly still exist, but with several sources of uncertainty as we begin the year, we believe a cautious approach is warranted heading into the new year.
