A survey of 100 leading UK and European insurers has found that 55% plan to diversify their portfolio risk over the next 12 months to contend with historically low interest rates.
The survey was conducted by Clear Path Analytics in partnership with BNP Paribas and Invesco .The survey resukts comes afterwith the Bank of England recently cut its main policy rate to just 0.25% – the lowest in its 300-year history.
With European life and non-life assets totalling around £10 trillion, expectations of low returns in the longer term represent a significant challenge.
The survey said these expectations of low long-term investment returns, combined with regulatory constraints, make it difficult for managers of insurance assets to meet their require levels of return without increasing risk.
Unsurprisingly, 67% of respondents said their main investment challenge was continuing low returns from fixed income assets, which alongside falling yield bonds in the US and Europe, and a more challenging equity market is prompting market participants to consider diversifying into a wider range of assets.
Lower returns have led insurers to make changes to their investment approach, from investing in alternative assets such as real estate or private equity and debt, to outsourcing investment capabilities to specialist managers.
Key to this is identifying opportunities for enhanced yield, without excessive incremental risk. Of those surveyed, 63% are looking for outsourced investment expertise to identify and manage these investments.
Javier Peres Diaz, head of European loans at BNP Paribas Investment Partners, named the European corporate loans market as a potential alternative: “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.“