LONDON--(BUSINESS WIRE)--European (re)insurers are well positioned to withstand the current volatility in the stock markets, having made significant changes to their investment portfolios since the global financial crisis of 2008, and the subsequent European sovereign debt crisis in late 2011 to 2012.
A new briefing from A.M. Best titled, “European Insurers and Reinsurers Withstand Stock Market Volatility but Investment Options Limited,” states that in addition to the notable shift from shares to high-quality fixed income assets, the majority of the large European (re)insurers are currently extremely well capitalised. They are also well aware of the speed at which liquidity can freeze up and how contagion effects can spread to both real estate and equities.
Carlos Wong-Fupuy, senior director, analytics, said: “Typically, most of A.M. Best’s highest rated European large insurance groups have a buffer of 20% to 30% in their investment portfolios to withstand market value fluctuations without incurring negative pressure to their current ratings. In some instances, entities rated by A.M. Best could endure even greater asset depreciations.”
The European (re)insurance companies rated by A.M. Best have no significant direct investments in China. Nevertheless, the decline in the Shanghai Composite Index, compounded by “Black Monday” on Aug. 24, 2015 when it tumbled 8.5%, and the contagion effect of the impact of China’s slowing growth on the global economy, is of concern. The significant declines seen in global equity markets in the past few months, and the drop in commodity prices, come at a time when European (re)insurers have started to move assets back into stocks and real estate.
Investment portfolios are still largely concentrated on fixed income instruments. However, given the low interest rate environment, many companies have recently begun to search for yield and have shifted into real assets including infrastructure projects, equities and real estate. Yvette Essen, director, research & communications – EMEA and author of the briefing added: “If there are worries about a slowdown in global economies, options for insurers to try to increase their investment returns will become more limited.”
To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=240850.
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