European insurers are turning to fixed-income investments amidst inflation and market volatility, a recently published report by Cerulli Associates reveals.
According to the ‘European Insurance Industry 2023: Meeting Investment Needs‘ report, concerns over higher inflation rates and their impact on interest rates and profitability have prompted insurers to focus on fixed-income strategies.
Approximately 30% of European insurance firms expect to adjust their fixed-income allocations in the next year, and the preferred fixed-income options include investment-grade sovereign bonds, green bonds and investment-grade corporate bonds, noted the report.
The report also found that insurers are seeking higher quality in core fixed-income assets due to their attractive yields and lower default risks.
Larger insurers intending to increase government bond allocations are open to working with external asset managers, highlighted Cerulli Associates, with small and mid-sized insurers showing a growing interest in green and sustainable bonds and considering partnerships with external asset managers to expand their green bond assets.
The report also noted that European insurers have gradually shifted their fixed-income portfolios towards higher-yielding corporate bonds over the past decade, leading some to outsource parts of these portfolios to external asset managers.
Cerulli Associates emphasised the need for asset managers to maintain service quality to avoid losing insurance clients, particularly as insurers plan to increase outsourcing in the next three to five years.
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