What investment opportunities are there for insurers in a post Covid age? New whitepaper from CAMRADATA explores…

CAMRADATA’s latest Insurance CIO whitepaper focuses on the impact of the pandemic and the investment opportunities ahead, as well as the products and services clients want in a post pandemic world.

The whitepaper includes insight from guests at a virtual roundtable hosted by CAMRADATA in September, including representatives from Barings, Muzinich & Co, Payden & Rygel, Canopius, Foresters Friendly Society, PoolRe and Phoenix Group.

Natasha Silva, Managing Director, Client Relations said, “As the world emerges from the Covid-19 pandemic, insurers have their sights set on opportunities further along the risk curve amid improving economic conditions. Previous business models will no longer suffice and given rapid digital transformations, now is the time for insurers to adapt their products and services

CAMRADATA said insurers will need to scrutinise policy and regulation – particularly with the UK’s departure from the EU and the deviation that could follow in a bid to demonstrate the dividends of Brexit. Another key issue is regulation such as Solvency II, the European framework for insurance regulation. The Association of British Insurers (ABI) has welcomed the government’s announcement to reform Solvency II for the sector to maximise its contribution to climate change investment and driving green investment

 

The pandemic leads to asset allocation changes

Some insurers and reinsurers said they had made major allocation switches last year, fearing the impact of the pandemic.

Ian Coulman CIO of PoolRe said its equity and credit portfolios were cut by 25% in June 2020, and they moved into short-duration gilts instead.

Gareth Russell CIO of Canopius, a speciality lines (re) insurer said that ‘the tough, low-rate environment for sovereign issues and cash rates, alongside extremely tight Investment-Grade credit spreads had inspired a shift of almost 20% of the portfolio into AAA and AA-rated Collateralised Loan Obligations (CLOs).”

For Phoenix Group and Foresters Friendly Society, allocation changes were not so profound. At Phoenix, the focus away from the UK to global assets continued, with a secondary asset allocation trend towards venture capital and private assets. At Foresters Friendly Society, there was a continued move into alternative assets, with allocation to two trade finance funds. They also reduced exposure to equities.

 

How are Insurers acting?

Payden & Rygel senior vice president, Eric Delomer said their clients’ appetite for credit and yield enhancements meant they were looking at Emerging Markets Debt, structured credit and higher quality High Yield.  From a credit perspective, he said insurers in strong capital positions could find attractive opportunities in CLOs given their better valuation relative to corporate bonds.

For Lin Qu, head of investment solutions at Muzinich, three drivers of yield enhancement in the current low-yield market illiquidity premium, dislocation opportunities and complexity premium. Qu added that short duration credit could be attractive with potential rate rises and inflation expectations in the developed markets and EM Short Duration Credit can provide diversification as well as yield premium.

Ann Bryant, head of Barings’ Global Insurance Solutions group observed that for all the talk about asset allocation switches, insurance companies are typically buy-and-hold investors and move quite slowly. Bryant sees opportunities in CLOs, yield pick-ups in Emerging Market Debt, and more and more attention being paid to capital arbitrage.

Other subjects debated were opportunities in bedrock assets, anxiety around inflation and its potential influence on asset values, and which asset classes presented the best opportunities.

Finally, the debate turned to ESG. One panellist said asset owners should take more responsibility and challenge corporates about their approaches to ESG. The variability of ESG data and differences in standards and measurements were discussed also as being challenges. It was also noted that insurance companies are gravitating towards climate change investments, where they can access data.

Ann Bryant said, “As a large investor we can influence progress and attempt to bring about change.”  Payden & Regal is also taking a very proactive approach and has recently signed up the Net Zero Asset Manager’s Initiative whereby managers, partner with their clients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050.

The whitepaper also features two articles from the sponsors offering valuable additional insight. These are:

  • Barings: ‘The staying power of commercial mortgage debt’
  • Payden & Rygel ‘’FAL – Back to the Future’

For the full report, download the Insurance CIO whitepaper, click here

For more information on CAMRADATA visit www.camradata.com

About Lisa Baker, Editor 2390 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.