Insurance companies remain invested in higher risk assets despite the cost pressure of Europe’s Solvency II Directive, which was expected to drive asset allocation into bonds, research has found.
John Dowdall, managing director of Silverfinch, writes in the March issue of Funds Europe that the higher capital charges for holding equities has not put insurers off from owning them.
Under Solvency II, a directive that primarily targets the amount of capital insurers should hold to reduce insolvency risk, equities in OECD countries carry a 39% capital charge, while sovereign bonds carry as little as 0%.
Silverfinch, a data management firm that specialises in Solvency II, surveyed some of Europe’s largest fund managers to see if asset allocation had changed. The research followed an Axa Investment Managers report, Dowdall writes, that in the early years of Solvency II estimated insurers had pulled €500 billion from the equity market ahead of the Directive’s implementation – though this money subsequently found its way back into stocks as firms sought higher returns.
“The overriding driver of asset allocation remains the low-yield environment and overcoming that is still the main reason for investors placing their assets in certain classes,” says Dowdall.
If insurers do start making changes in relation to the charges this will probably not be for another six to 12 months, he adds. Solvency II came into effect in January this year.
“Most of the asset managers wanted it put on record that when insurers eventually do get around to considering their asset make-up, that they don’t focus so much on capital charge efficiency that they lose out on investing success.”
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