Solvency UK has opened up new investment opportunities for insurers, but Marsh Investments’ Joshay Harkoo argues that the ability to exploit them will increasingly depend on governance, operational capabilities and effective risk management.
Insurers have gained access to a wider range of investment opportunities following reforms to Solvency UK, but a growing divide in their ability to manage more complex assets could determine which businesses benefit most.
Joshay Harkoo, director, client solutions at Marsh Investments, believes the gap between sophisticated insurers and those lagging is widening. However, the difference is largely one of operational capabilities rather than investment appetite.
“Almost every insurer that we speak to is interested in private markets,” he says. “The real differentiator is whether they have the governance, analytics, credit processes and broader oversight framework to access private markets safely and at scale.”
This is becoming increasingly important as regulatory changes allow insurers to explore opportunities that were previously uneconomic to access.
Harkoo argues that private markets allocations only become meaningful when insurers have the governance and processes necessary to support them.
Some early adopters are now reassessing whether their existing arrangements remain fit for purpose, he says, including the extent of their control and influence over investment strategies. “While private market allocations get the headlines, we think it is actually capabilities that determine whether an insurer can access the space credibly and repeatedly.”
Expanding opportunities
Structured credit is one area attracting growing attention, supported by regulatory reform and the potential to access diversified pools of underlying assets while earning additional spread.
For UK life insurers, the matching adjustment (MA) rules under Solvency UK have expanded the range of potentially eligible investments, including assets with highly predictable cash flows.
Harkoo says this has made certain structured credit investments more compelling for insurers operating internal models, while interest is also spreading beyond the life sector.
“For the large life insurers in the UK operating under internal models, the Solvency UK reforms have made certain areas of structured credit very compelling for inclusion within their MA books.”
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He points to growing investment in highly rated collateralised loan obligations (CLOs), with interest extending to property and casualty and specialty insurers.
Separately, regulatory changes in Europe are encouraging insurers to revisit structured assets following years of relatively limited participation after the global financial crisis. “I think we’re on the brink of insurers really re-accessing the market at scale,” Harkoo says.
However, increased demand could affect the returns available. Some specialist asset managers are already positioning themselves to capture opportunities before an anticipated influx of insurance capital potentially compresses spreads.
Harkoo believes insurers will need to consider whether to develop specialist capabilities internally, recruit experienced teams or partner with external managers to access these markets.
Managing the risks
Greater investment flexibility also introduces challenges around portfolio construction, particularly as capital becomes increasingly concentrated in certain sectors.
Harkoo identifies the rapid growth of artificial intelligence financing as a potential source of correlated exposure across insurance portfolios.
His concern centres on the scale of debt-funded capital expenditure by major technology companies and the resulting concentration within credit benchmarks.
“The issue is how heavily debt-funded capital expenditure has been,” he says. “The hyperscalers are starting to dominate US credit indices, and that inherent concentration risk is my main concern.”
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As larger debt issuers carry greater weight in market-value-weighted credit indices, insurers could accumulate significant exposure to the same risks across different investment strategies.
Harkoo also questions whether private markets portfolios across major life insurers may be becoming more concentrated generally, particularly as private assets account for a growing proportion of their balance sheets.
Harkoo says Marsh examines holdings line-by-line, including those managed by different external asset managers, to identify correlations and assess the overall concentration of risk.
Nevertheless, he emphasises that UK insurers remain well capitalised, with strong risk functions and regulatory oversight, making an impending sector-wide crisis difficult to envisage.
Strategic partnerships
For Harkoo, these developments are changing the relationship between insurers and their asset managers.
“The biggest misunderstanding among asset managers is thinking that insurers are buying an asset class,” he says. “They’re not. What they’re trying to do is solve a balance sheet complexity or achieve a business growth objective.”
Reporting, liquidity analysis, regulatory compliance and understanding capital implications are increasingly baseline requirements. The differentiator is whether managers can connect investment opportunities with insurers’ broader commercial objectives.
These might include supporting growth in bulk purchase annuities, protecting profitability, entering new markets or improving asset-liability matching.
Harkoo believes that requires a more strategic relationship, with investment decisions increasingly shaped by the wider requirements of the insurance business.
Harkoo will be participating in Longview Networks’ Insurance Investing Roundtable on 14 October 2026.