Regulatory reform supports greater allocations to secure income assets, European life insurers say

Written by Adam Cadle

11/10/2023

European life insurers are optimistic that changes to regulation will make it easier to invest in secure income assets and private markets, new research has found.

A survey of European life insurance companies that collectively oversee €2.73trn in assets, commissioned by AlphaReal, the specialist manager of secure income real assets, revealed that two-thirds (66%) of respondents believe that reform of legislation including the Solvency II Directive supports greater allocation to a wider range of secure income assets. One-third (33%) of life insurers believe the reforms will have no impact on allocation to secure income assets, while just 1% say reforms are not supportive.

In terms of how their allocations to secure income assets are classified within their organisations, 48% of survey respondents said it is classified as alternatives; compared to 44% who said it is real estate and 8% who said it is seen as alternative credit.

When it comes to the rating categories within which they will invest in secure income assets, 66% selected AA instruments; 49% chose A rated; 26% cited BBB grade and 7% BB. Nearly all (98%) European life insurers say they have been successful in integrating secure income assets within a matching portfolio.

When asked about the impact of regulatory reforms on European life insurers’ investments in private markets, 88% say they will be supportive of allocations, while 12% say they will have no bearing.

Life insurers surveyed by AlphaReal typically focus on Europe for their private market allocation. Almost half (47%) invest Europe-wide with a home country bias; 33% invest Europe-wide; 17% invest solely in their home country; and 3% have a global allocation.

Boris Mikhailov, head of client solutions at AlphaReal, said: “Since Solvency II came into force in 2016, insurers have been limited in their ability to hold long-term equity instruments. This is at odds with the European Union’s goal to drive investment in long-term sustainable investment projects and stifles life insurers’ ability to diversify across different asset classes including private markets and secure long-term income funds that are well suited to matching their liabilities. We welcome any reform that gives insurance companies the opportunity to invest strategically in these assets.”

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