@Wellington.
Tim Antonelli, CAIA, CFA, FRM, SCR, Head of Insurance Multi-Asset Strategy
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Insurers are no strangers to managing risk. With the performance of their invested asset base designed to bring stability to the net margins of their businesses, they generally have little appetite for taking on uncompensated risk. In recent years, the insurer’s “risk mosaic” has included recessionary fears, geopolitical shocks, and the impact of higher-for-longer inflation.
While all of those risks should be monitored and managed, insurers planning for 2025 should be careful not to overlook a potentially larger and more immediate risk over which they have even more control: recency bias.
It’s a key tenet of behavioural finance: Investors put an outsized emphasis on recent information or events, projecting them into the future while ignoring long-term relationships. This is a primary driver of the dreaded herd mentality that comes alongside performance chasing. For a variety of business-specific reasons (regulations, taxes, etc.), insurers generally aren’t actively reallocating to the best-performing assets or making large bets on duration, but I think there are structural elements of recency bias that they should resist.
In this year’s Outlook, I dig into three areas where I see this challenge and offer ideas to counter it and build portfolio resilience for 2025 and beyond:
