We believe emerging markets debt warrants a strategic allocation by insurance companies—but while our own conversations indicate change is coming, holdings analysis suggests insurers are not yet taking advantage of the opportunity.

We believe that the size, diversity and fundamental robustness of emerging markets debt make it a suitable strategic allocation in any institutional investor’s portfolio, including any type of insurance company.

There is growing recognition of the benefits of emerging markets debt investing among insurers, and our own conversations indicate a rapid change in the way they think about the strategic role of the asset class. Nonetheless, right now our analysis of U.S. insurers’ holdings suggests that they still tend to treat emerging markets debt opportunistically, as a tactical source of yield. We present these findings in this paper, discuss the risks associated with this opportunistic approach, and restate the case for a dedicated and strategic allocation to emerging markets debt.

Executive Summary

  • How Does Emerging Markets Debt Justify a Strategic Allocation?
    Underlying fundamentals have been improving for many years
    The asset class is large, diverse and flexible
    Yields are high relative to credit quality and duration
  • How Do Insurers Invest in Emerging Markets Debt?
    Insurers are under-invested and highly concentrated
    Insurers are heavily biased to Latin America—especially Mexico
    Insurers favor investment grade, long-duration, hard-currency and corporates
  • The Story of the Data: Insurers Are Missing Out on Strategic Potential
    Current allocations fail to take advantage of some of the key characteristics of the asset class
    Ongoing conversations indicate to us that this could be about to change rapidly

Insurers Are Substantially Overweight in Latin America

Insurers Are Substantially Overweight in Latin America

Source: SNL Financial, J.P. Morgan, FactSet, Bloomberg. The Index is constructed by combining JPM CEMBI Diversified Index and JPM EMBI Global Diversified Index.