Though geopolitics has come to the fore, insurers are addressing a wide range of other issues.
The insurance industry faces challenges that are ever-changing, as client needs, risks and reinsurance risk transfer evolve. Answering those challenges was the order of the day at the 2025 European Insurance Forum, ReThinking Insurance 2025: A Brave New World.
AB hosted European insurance leaders with US$2.9 trillion in collective assets, exchanging expert perspectives in a series of panel sessions. Here's a recap of select themes from the event.
Geopolitics Comes to the Fore
Political risk is always a major issue for insurance investors. Now, with new US political leadership implementing major policy changes with speed and intensity, geopolitics has moved to center stage.
As heavy investors in fixed income, our panelists shared several concerns about the asset class. They included the sustainability of the US government’s debt trajectory, the potential inflationary effects of deglobalization, and the impact on European government bond yields of higher defense spending and lower revenues from tariff-hit taxpayers.
In today’s more challenging investment regime, even US government debt was seen less as a risk-free asset and more as another risk to be calibrated. One UK insurance chief investment officer (CIO) stressed the importance of hiring geopolitical risk experts as part of their investment team.
European Insurers Are in a Stronger Fundamental Position
Despite an uncertain policy environment, the fundamentals for Europe’s insurers have improved. Notably, ultra-low interest rates, which had posed an existential problem for insurance companies pre-COVID, are a thing of the past. Inflation rates across Europe are converging toward a 2% level, near the lower end of a range that insurers can work with.
Also, while the drive to net zero continues to impose significant costs on Europe’s economies and consumers, both power infrastructure and AI are creating a range of new opportunities for long-term investors like insurance companies.
Specifically in the UK, over £600 billion of assets are set to transfer to insurers as defined-benefit pension schemes transition to buyout.
A Growing Role for Private Credit Investments
Panelists shared a broad consensus that investment returns were likely to be challenged by a combination of factors: adverse demographics, deglobalization, the costs of the clean-energy transition and heavy public and private debt. In a new investment regime where beta would likely be lower, the return-seeking potential of private credit was seen as increasingly important.
The group also noted the greater variety of private credit opportunities now available, and their potential to match an increasing range of liabilities while providing higher return potential than publicly traded government bonds and corporate debt. (“Stay up in quality in public markets and get your bigger payoffs in private credit”, as one panelist put it). At the same time, participants also noted the importance of hiring experts and building technology to invest in specialist assets.
Good Timing: Favored Sectors for Insurance Investment
Insurers expressed a variety of opinions influenced by their different liability profiles. There were strong views favoring the attractions of real estate debt investments in sectors with least obsolescence risk—traditional residential, residential care homes and student housing—based on buoyant demand and short supply. Conversely, a more negative business climate—including rising costs and falling commercial real estate (CRE) values—was seen as adverse for small and medium-sized enterprises. A contrarian panelist highlighted the attractions of beaten-down CRE investments where cash flows remain strong: these assets may prove highly attractive.
Similarly, in investment-grade credit, even less-promising business sectors have the potential to be profitable if covenants and other protections are structured in the right way. Improved structuring was seen as a big positive for structured assets: more sophisticated software and analytics have enabled better risk management and more robust products.
For longer-term holdings, private investments across income strips, tenant leases and commercial ground rents were also mentioned. All these investments have the potential to provide long-term, inflation-protected income streams with a relatively high degree of security for investors.
Regulation: A Call for Change
Panelists advocated for change across a range of regulatory and governmental issues.
In the UK particularly, a more pro-growth regime was called for from government and regulators, and more retirement savings innovation required from product providers. Also, a more flexible approach from regulators would allow insurers to provide guidance to savers, and a greater commitment from government is needed to help improve infrastructure, particularly in green energy and transportation.
Insurance underwriting is continuously trying to catch up with climate modeling, but this effort is leading to very high premiums and potentially the withdrawal of insurance cover from higher-risk regions. Governments across Europe, the attendees felt, may need to step in if they want to ensure continuity of cover across the whole market.
ESG: an Evolving Picture
Decarbonization remains an investment priority for insurers—although some panelists considered a 2050 net-zero target unrealistic.
Meanwhile, the Ukraine war has forced insurance CIO panelists—especially those from northern Europe—to revisit their stance on excluding weapons-related investments. Controversial weapons were still deemed unacceptable but otherwise there was no clear consensus among the CIOs regarding exclusions. These panelists were keenly aware of the importance of technology (including of course AI)—and noted that defense industries were a major source of tech innovation.
The responsible investing panelists accepted that defense posed challenges from an ESG integration perspective, given the absolute need for security and the wide spread of suppliers, including giants such as Microsoft and Google. However, they emphasized that investors should not lose sight of the risks inherent in arms manufacture and trading, and that due diligence remains critical. More broadly, they stressed the need to consider both investors’ preferences and financial materiality when applying ESG considerations to portfolio construction.
As fixed-income investors, insurers can play an important role in encouraging higher standards. Although bondholders don’t have voting rights like stockholders, they are in a powerful position when companies seek to refinance their debts. Each time issuers come to the table, insurers can engage* with companies’ representatives and bankers to encourage better data disclosures and more specific, measurable goals for ESG-structured bonds.
