Most European insurers to diversify portfolio risk in coming year – survey

Some 55% of 100 UK and European insurers, totalling around £10trn of assets, have plans to diversify their portfolio risk over the next 12 months, a research conducted by Clear Path Analysis with BNPP IP and Invesco shows.

The survey finds out that more continental European insurers surveyed would increase their portfolio risk than their UK peers.

Over half say they would do it by diversifying into strategies that carry a higher risk vs. return ratio in the next 12 months, the survey shows. Over one-quarter of UK insurers interviewed would follow the same path.

Private markets are gaining attention from insurers as respectively 46% and 42% of the respondents said they would diversify their portfolio risk through infrastructure debt and senior corporate loans.

Corporate loans have aroused the interest of life insurers in particular (63%) that would favour an allocation to the asset class while only 30% of other insurance categories would.

Javier Peres Diaz, head of European Loans at BNP Paribas Investment Partners said: “Naturally there is an appetite for healthy yield among insurance company investors and this slice of the corporate debt sector focuses on loans to companies rated just below investment grade, offering attractive, stable and long term returns.

“With a European corporate loans market of €514 billion, it is little wonder insurers are considering corporate loans as a way of diversifying risk. The European loan market offers stable, long term returns and this area of the corporate debt market focuses on loans to companies rated just below investment grade. The market is worth over €500m and provides insurers with an attractive means of diversifying their risk and return profile.”

Among other findings, the survey reveals that 67% of the insurers interviewed see low returns from fixed income assets as the main macro concern followed by implications of Brexit and China’s economic risks.

Another component of the survey underlines outsourcing is ever more considered in the insurance space with 63% of the respondents looking for outsourced investment expertise to identify and manage these investments.

Some 13% of European insurers considering outsourced investment expertise across all asset classes.

Clear Path Analysis’ survey notes that those at the smaller end of the spectrum are most likely to outsource as all respondents with assets under management of less than £200m indicate a requirement for outsourced expertise for broad fixed income allocations.

Mustapha Bouheraoua, head of Institutional Business in France at Invesco commented: “The challenge for insurers is to find a specialist to source the deals that represent good value, for that you require high quality credit research. They have the potential to capture an illiquidity premium, add diversification to a portfolio and match liabilities.

“Given their sensitivity to interest rates the variable rate profile is key, something life insurers with long duration liabilities need to be acutely aware of.”

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