Fund managers to profit from insurers’ exposure to new asset classes, ING IM

Only 22% of UK based active fund managers and financial intermediaries think falling investment returns for insurers have ‘bottomed out’ and expect they will increase, according to research published by ING Investment Management (ING IM).

Unprecedented challenges will in particular be faced by the insurance sector and insurers must take significant steps to adapt their investment strategies, presenting important opportunities for the investment management industry, the bank warned.

ING IM sees the insurance sector as an important growth market, and plans to increase its focus here by, for example, offering new insurance specific investment strategies. These will include focusing on new and alternative asset classes such as senior bank loans, infrastructure debt, ECA (Export Credit Agency) and SME (small and medium enterprises).

ING IM’s research revealed that 49% of fund managers and financial intermediaries interviewed believed insurers have increased their exposure to new asset classes over the past 12 months such as infrastructure and lending to commercial property companies. Just over one in six said their allocation here has not changed, and 1% said they thought it had fallen.

When asked about the next three years, 77% of those interviewed said they expect insurers to increase their exposure to these new asset classes – 13% expect a ‘significant’ increase here.

According to Jelle van der Giessen, deputy chief investment officer at ING IM, falling investment returns have been a headache for insurers who are asking themselves when investment earnings will be able to increase and how to position their asset allocation to generate the necessary returns. In addition to this Solvency II regulation will also cause challenges, placing potential further pressure on dividends.     

“The trend within the European insurance sector over the past few years shows already some evidence of insurers searching for yield enhancement by increasing their investment exposures to infrastructure and mortgage loans in alternative to both equities and corporate bonds. In particular life companies that need to match long duration liabilities have shifted their asset allocations towards these new asset classes and we believe this is a trend set to continue,” he added.

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