LONDON--(BUSINESS WIRE)--After a period when the attention of European insurers has been more focused on non-investment sources of profit, important forces are moving the pursuit of improved investment returns up management’s agenda.
A new report from A.M. Best, titled "Investment Return Moves Up the Agenda for European Insurers; Significant Changes Possible Over Time," argues that the debate has moved on from a view that there was little real additional value to be gained in the investment space. How an insurer might achieve structurally superior and persistent returns from its investment activities has re-emerged as a legitimate subject for management attention.
Tony Silverman, senior financial analyst and author of the report, stated: “These forces include the persistence of low returns from traditionally core asset classes held by European insurers, pressures on non-investment sources of profit, the longer term consequences of the financial crisis, a search to be rewarded for supplying liquidity to financial markets and the evolution of reporting and regulatory frameworks that would recognise such returns.”
Whilst these forces are multifaceted and it can be hard to compare their effects, A.M. Best believes that they have combined to shift management toward an increased engagement with the investment function, with the expectation that insurers should earn more than a risk-free rate and should achieve this through exploiting structural advantage rather than merely achieving tactical successes.
Core asset classes could be subject to significant changes in asset allocation over time, as A.M. Best believes has already been the case for the role of bank debt in insurers’ corporate bond portfolios. Silverman added: “A higher allocation to investments currently categorised as ‘alternative,’ such as direct lending and real assets, is one likely consequence of the evolution of European insurers’ asset allocation.”
The report further states that A.M. Best will continue to monitor developments in the asset allocation of European insurers and consider their investment exposure in light of the effectiveness of their enterprise risk management (ERM) framework. For those insurers that are rated, A.M. Best would also look for them to govern changes in asset allocation with reference to their impact on ratings.
To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=239951.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
