31 March 2014 Insurance

Europe’s insurers fail to adapt investment strategies

Unlike their US peers, European insurers have failed to adequately adapt their investment strategies to the low interest rate environment.

This is the conclusion of a report by Deutsche Asset & Wealth Management on developments in the insurance market.

US insurers have continued to realign their investment portfolios in response to challenging economic and market conditions. Increasingly insurers are investing or likely to invest in riskier asset classes.

But European insurers have not adapted their investment strategies to the low interest rate environment, with limited allocations to asset classes with potentially higher investment returns, according to a Fitch study cited in the Deutsche Asset & Wealth Management report.

Fitch found exposure to equities and real estate had declined on average in the European insurance sector over the past five years with alternative assets still playing only a minor role.

As the credit risk exposure within bond portfolios has materially increased and there has also been a tendency for insurers to invest for longer durations, Fitch is monitoring the increased risk, viewing the development as potentially credit negative, although it has not reached a level that would result in a downgrade.

While there are signs that insurers are increasingly prepared to take greater risks as the economy picks up, regulatory constraints are likely to form the framework for development going forwards.

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