LONDON--(BUSINESS WIRE)--European (re)insurers have benefited from investment gains as they have increased their holdings in equities over recent years, although inevitably their exposure to market risk has risen, according to a new report by A.M. Best. Analysis of the 500 largest companies in Northern and Western Europe, with a combined invested asset base of more than EUR 8 trillion, shows over a six-year period, there was a decline in allocation to fixed-income products.
The Best’s Special Report, titled, “Interest Rates – The Long Wait. How will European Insurers react to Uncertain Economic Conditions?” states (re)insurers and pension funds form an important part of the investor base searching for yield to maintain their profitability and funding levels. Consequently, an increasing proportion of (re)insurers’ investment portfolios are being allocated to shares and non-traditional asset classes, which provide the potential for higher returns. A.M. Best estimates there has been a 2-3% shift between fixed-income and quoted equity over the six years leading up to 31 December 2016, equating to around EUR 200 billion. This is despite Solvency II coming into effect on 1 January 2016.
Thomas Bateman, financial analyst, said: “This more rigorous risk-based regulatory framework in theory should have encouraged insurers and reinsurers toward a more efficient asset allocation, to optimise performance and solvency. However, the data does not seem to be consistent with a view that this could result in investment portfolios that attract lower risk charges. Insurers and reinsurers operating in the region are considered to be well-capitalised, hence there is limited pressure from a capitalisation perspective for companies to de-risk their investment portfolios. In addition, companies in Northern and Western Europe tend to use sophisticated asset liability management techniques, which form a core part of the strategic allocation process. Consequently, as capital management forms only one portion of the investment process it is unlikely to be the primary driving force behind asset selection at present.”
To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=272724.
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