Geoeconomic fragmentation, growing investment in private credit and increasing adoption of artificial intelligence are key focus areas this year for international insurance supervisors.

The Global Insurance Market Report mid-year update shows insurer solvency, liquidity and profitability positions remain strong and systemic risk scores are stable.

But the International Association of Insurance Supervisors says caution remains as market volatility and global economic headwinds pose challenges to balance sheets.

Each year the association identifies themes that are “top of mind” globally, publishing a full report in December.

The mid-year update says rising geopolitical tensions and economic divisions are creating significant challenges, including credit, foreign exchange, liquidity, interest rate and underwriting risks.

“Insurers are responding with robust risk management strategies, such as asset reallocation, scenario testing and crisis response planning,” it says.

Companies report “fierce competitive pressure” to find AI use cases that, among other benefits, improve consumer outcomes, reduce costs and make them more efficient.

“Thus far, supervisors report that AI adoption is primarily driven by its potential to reduce costs and enhance data analysis capabilities, although [generative AI] adoption appears limited to a small number of insurers.”

Sector-wide monitoring questions on AI are being included this year to provide insights, with data on adoption largely anecdotal and quickly outdated.

The IAIS has previously noted increasing allocation of life insurer capital to alternative assets and the “expanding use of cross-border asset-intensive reinsurance”.

The global monitoring exercise this year will include analysis of insurers’ investments in private credit, a rapidly growing subsector of alternative assets with unique characteristics.

Private credit borrowers may include smaller or less established entities with higher risk profiles than public issuers, or they could be larger borrowers seeking capital through complex financial structures.

Other high-priority areas this year include cyber and climate-related risks.