European life insurers, managing a cumulative €2.73trn in assets, signalled an optimistic shift towards investing in secure income assets and private markets, pivoting on anticipated regulatory reforms, according to a survey commissioned by AlphaReal and conducted by Pure Profile in August 2023.
Boris Mikhailov, AlphaReal’s head of client solutions, pointed out that, since the inception of Solvency II in 2016, insurers faced limitations in holding long-term equity instruments, which paradoxically stifled the European Union’s aim of steering investment towards long-term sustainable projects and constrained insurers’ capability to diversify across varied asset classes, such as private markets and secure long-term income funds suited to match their liabilities.
The forthcoming adjustments to legislation, including amendments to the Solvency II directive, were favoured by two-thirds (66%) of the survey respondents. They opined that such reforms substantiated an enhanced allocation across a broader spectrum of secure income assets. Contrastingly, a third (33%) believed the reforms would not influence allocation to secure income assets, and a minimal 1% deemed the reforms to be unsupportive, according to the survey findings.
In the context of multiple rating categories earmarked for investments in secure income assets, a robust 66% of insurers opted for AA instruments, while 49% selected A rated, 26% chose BBB grade, and the remaining 7% opted for BB, the survey highlighted.
Interestingly, a whopping 98% of European life insurers asserted that they successfully integrated secure income assets within a matching portfolio. Furthermore, regarding the impact of regulatory alterations on investments in private markets, a dominant 88% found them supportive of allocations, whilst the remaining 12% believed they would not affect investments.
Exploring geographical preferences in private market allocation, the survey showed that 47% of life insurers invested Europe-wide, albeit with a home country bias; 33% invested across Europe without bias; 17% restricted investments to their home country; and a mere 3% allocated globally.
Ed Palmer, co-deputy CEO and CIO at AlphaReal, stressed the pivotal role insurance companies could play in aiding growth in the real economy. He emphasised that by investing in sustainable infrastructure, real estate and projects propelling the green transition in Europe, insurance companies could activate essential financial support.
The survey involved 100 senior investment professionals from life insurance firms across the UK, Germany, France, Switzerland, Netherlands and Italy.
AlphaReal is a London-based real assets investment manager with £4.7bn (€5.4bn) in assets under management.