Many are adopting best practices in asset-liability management (ALM) and closely integrating these practices with allocation decisions and performance measurement. This shift reflects insurers' responses to evolving capital regimes and the increasing emphasis on embedding capital efficiency requirements into their investment processes.
Adapting to this dynamic environment is no longer optional for insurance companies. Amid ongoing market volatility and uncertainty, insurers are reassessing their exposures across public and private markets – and re-evaluating how they select and collaborate with third-party managers. To navigate these risks, greater diversification is key, including a broader focus on alternative asset allocation.
A rapidly changing regulatory landscape is also prompting many APAC insurers to rethink their approach to ALM – ensuring it aligns with new requirements and long-term strategic goals.
New drivers of investment decisions: geopolitical tensions and capital regimes
In the first quarter of 2025, we surveyed over 50 insurance companies across APAC. The results show that risk versus return remains the most critical driver of investment decisions, with one-third of insurers ranking it as their top priority. This is largely driven by increased market volatility stemming from geopolitical tensions and the potential impact of Trump 2.0 policies.
The evolving insurance capital regime is the second most influential factor, as insurers seek to modernise their approaches to gain a competitive edge in the marketplace.
In contrast, liquidity and diversification – particularly expanding exposure to alternative assets – are currently lower on the priority list for many insurers in the region.
Putting ALM best-practice at the core
In today’s challenging market and regulatory landscape, nearly 80% of survey respondents say the most appropriate KPI (key performance indicator) for evaluating investment performance incorporates both liability-matching and risk capital requirements.
By comparison, only 2% of respondents focus solely on liability-matching, while 15% focus exclusively on portfolio returns.
This trend is unsurprising. In the current environment, we believe adhering to liability-driven investment principles offers insurance investors better protection. Insurance liabilities provide a natural hedge. For example, when the interest rate sensitivities of assets and liabilities are closely aligned, the drop in asset values due to rising risk-free rates can often be offset by a corresponding fall in liability values. Similarly, minimising net currency mismatches between assets and liabilities can deliver comparable benefits.
This approach is gaining traction across Asia. A senior investment practitioner at one of the region’s leading insurance firms told us their ALM process has become the foundational pillar for defining and implementing investment strategy. By focusing on outcomes, they can adjust allocations with liability-matching in mind – freeing up risk budgets for other asset classes.
As such, we believe robust ALM practices should play a central role in measuring investment performance. Traditional approaches like Strategic Asset Allocation, Tactical Asset Allocation and diversification remain important – but they should complement, not overshadow, the critical role of effective ALM.
Across insurers in Hong Kong, Singapore, and Korea, just over one-third have established matching adjustment portfolios that comply with local regulations while also optimising the matching adjustment spread.
However, around 40% focus solely on regulatory compliance, while the rest are either planning for implementation (18%) or have no plans to implement matching adjustments (8%).
In Malaysia, Thailand, and Taiwan, the approach is slightly different. Over 90% of insurers report that liability-matching requirements influence their investment decisions, with half of all respondents focusing on key rate duration or liability cash flows.
In contrast to many APAC insurers, some European firms don’t treat asset allocation and ALM as separate processes. Instead, they consider asset allocation as a core component of a holistic ALM framework. This means assessing how assets and liabilities might behave under different future scenarios. This involves evaluating factors such as returns, volatility, diversification, resilience to stress, liquidity, and the potential impacts on the balance sheet and solvency capital requirements.
This integrated approach provides a comprehensive view of risks and opportunities, enabling insurers to make more informed decisions and better prepare for market uncertainties.
Raising the bar in response to new regulatory regimes
A more coordinated and integrated approach to ALM has become essential under the evolving regulatory regimes across APAC. These new frameworks are driving insurance companies to prioritise efficiency by embedding capital requirements more effectively into their investment processes.
Our survey findings reveal varied responses. In Hong Kong, Singapore, and Korea, more than half (58%) of respondents report that their investments are subject to a risk capital budget, while only 9% have yet to begin this journey. In other surveyed markets, adoption is much lower: only 38% apply a risk capital budget, and one-quarter have yet to integrate capital efficiency requirements into their processes.
Despite varying adoption rates, insurers across APAC face similar challenges when incorporating capital efficiency into their investment processes. Management teams often need to review and adapt existing frameworks to make capital efficiency a core investment objective. This also means establishing closer working relationships with actuarial, finance and risk teams to ensure alignment and integration.
To achieve favourable capital treatment under the current regulatory regimes, insurers across all surveyed markets broadly agree that infrastructure investments – both equity and debt – are the top priority for adjustment. This focus underscores the strategic role of infrastructure in optimising portfolios while meeting capital efficiency requirements.
Allocating to diversify risk and income
Insurers across Asia continue to demonstrate a strong appetite for private market assets, which are widely regarded as an attractive source of yield and diversification. Their growing popularity reflects both the need for yield enhancement in a persistently low-yield environment and the broader trend of banking disintermediation.
Among private market options, direct lending within the private debt space has emerged as particularly appealing to APAC insurers – a trend confirmed by the survey. Respondents across the region show unified interest in private debt for the remainder of 2025. In Hong Kong, Singapore, and Korea, over half (55%) rank corporate debt as their top choice, while 37% of insurers in Malaysia, Thailand, and Taiwan share this preference.
Within private debt, insurers have opportunities to maintain a balanced approach to risk and return. Investment-grade private debt and short-term financing options often suit the conservative nature of insurance portfolios, offering stable returns while mitigating some of the risks inherent in higher-yielding – but potentially more volatile – direct lending opportunities.
Private debt remains the clear front-runner among private market assets. In the survey, private equity ranks as the second among insurers in Hong Kong, Singapore, and Korea, while those in other markets show relatively strong interest in infrastructure debt.
When allocating to private debt, insurers place significant emphasis on the qualities of third-party managers. Across all markets, the most important characteristic is the manager’s track record, followed by experience and understanding of the investor’s insurance-specific needs.
These priorities reflect the desire among insurers to adopt a balanced approach, leveraging the expertise of third-party managers to navigate capital efficiency and risk management challenges. External managers bring specialised expertise, robust risk frameworks, and access to a wider range of investment opportunities – helping insurers design well-diversified portfolios aligned with their risk tolerance and return objectives.
Deployment capabilities and access to high-quality deals are key when selecting external managers. While larger firms often benefit from extensive networks, private debt expertise isn’t exclusive to size: smaller firms with deep knowledge and specialised skills can be equally effective. Strong relationships and established networks are especially valuable, giving insurers access to exclusive deals that can enhance private debt strategies.
Customisation is crucial for insurers. Tailoring deals to align with liability cash flows and matching adjustments enables them to maximise the benefits of private asset investments. Effective implementation is equally important, with high-quality client service, seamless communication, and rapid responsiveness serving as essential elements for successful private market investments.
Insurance investors should ask critical questions when selecting managers: Can they source and construct deals that align with liability cash flows? Do they understand the nuances of matching adjustments? And can they optimise matching adjustment benefits from private asset investments? These factors should weigh heavily in decision-making processes.
Final thoughts…
Insurers across APAC are navigating an increasingly complex macroeconomic, market, and regulatory environment – one that demands tough decisions around capital management, portfolio exposures and allocation strategies across public and private markets. Agility will be essential as they adapt to new regimes and build portfolios fit for the challenges and opportunities of a new investment era.
Source of all data: Aberdeen Investments, May 2025
A version of this article was first published in (Re)inAsia on June 27.