According to the GIMAR, insurers are allocating more capital into private credit and illiquid alternatives. While this move is often framed as a long-term return stabiliser, it comes with clear liquidity trade-offs. This is especially critical as the the risk of borrower default increases as interest rates and servicing costs rise. Hence, higher rates and longer investment horizons are double-edged; while they may boost investment returns, they also require a larger pool of buffer capital to manage downside risk.

The report goes on to highlight, that insurers operate in an increasingly volatile financial environment but with far looser liquidity safeguards than their banking counterparts. Whereas banks are subject to strict capital segmentation and liquidity coverage rules, insurers face no such requirements, even when engaging in similarly complex capital market activity.

At the same time, many insurers remain burdened by outdated payment processes that can lock up cash for six months or more. Legacy reconciliation, credit control and payout scheduling frameworks delay access to funds, reduce flexibility, and intensify operational stress. Without real-time visibility and control, insurers are often forced into expensive, short-term funding arrangements, depleting liquidity buffers precisely when they’re needed most.