The ILS Bermuda Convergence conference heard a warning about the potential for investment overexposure to related, or the same, artificial intelligence risks.

Joe Pursley, head of insurance distribution for the Americas at Nuveen, talked of the need to be guarded against the underappreciated portfolio risk: redundant thematic concentration in artificial intelligence and data centre infrastructure.

AI data centres are financed through diverse channels, he said, and a single data asset can simultaneously appear across an investor's infrastructure, corporate credit, asset-backed securities, equity, and public high-yield allocations.

He urged allocators to supplement traditional strategic asset allocation with a bottom-up thematic audit to prevent accidental overexposure to AI infrastructure.

Mr Pursley also told the annual conference, held at the Hamilton Princess & Beach Club, that there’s been a fundamental shift in how institutional investors define and deploy private debt.

Mr Pursley said there has been an evolutionary transition over the past three to five years.

Nuveen, which manages approximately $1.4 trillion in assets under management, engages daily with chief investment officers across the insurance industry to track evolving capital allocation trends.

The institutional investment professional said the move has been away from viewing “private credit” purely as traditional corporate direct lending — which typically consists of below-investment-grade floating-rate debt — towards a much broader, holistic asset class known as “private fixed income”.

The broader classification allows institutional investors to evaluate private fixed income across the entire spectrum of investment-grade, below-investment-grade, fixed-rate, and floating-rate instruments.

Rather than treating private debt as a small sub-allocation within an alternatives bucket, institutions are structuring private fixed income as a core percentage of their overall fixed-income portfolios.

Nuveen’s latest annual survey of more than 200 institutional investors in the United States underscores the change.

The survey revealed that 75 per cent of respondents plan to increase their private fixed income or private market allocations over the next five years.

Nearly 50 per cent of the surveyed institutions expect to allocate 20 per cent or more of their total portfolio to private fixed income over the same period.

The capital expansion is accompanied by increased selectivity. Mr Pursley noted that 50 per cent of surveyed insurance companies cite diversifying away from pure direct lending as their top priority over the next five years.

To maintain attractive risk-adjusted returns without over concentrating in corporate loans, insurers are turning towards alternative illiquidity and complexity premiums, particularly within asset-backed finance and structured credit.

Mr Pursley emphasised that while “complexity” is often misconstrued as higher risk, sophisticated insurers recognise that structured asset-backed cash flows offer robust structural protection and predictable coupon collection.

Furthermore, innovative co-investment models are emerging between regulated insurance entities and non-insurance institutional investors.

Under these structures, insurance companies take investment-grade senior tranches that minimise regulatory capital charges, while non-insurance institutions absorb first-loss tranches to capture higher yields.