European life insurers believe that changes to regulation will make it easier to invest in secure-income assets and private markets, according to research from real-assets investment manager AlphaReal.
Two thirds (66%) of respondents said that reform of legislation, including the Solvency II directive, supports greater allocation to a wider range of secure-income assets. One third (33%) said the reforms will have no impact on allocation and 1% said that the changes would not be supportive.
The research showed nearly half (48%) of the insurers surveyed classify secure-income assets as alternatives; 44% describe them as real estate; and 8% categorise these as alternative credit.
When investing in secure-income assets, 66% of respondents said they select AA-rated instruments; 49% choose A rated; 26% cited BBB grade; and 7% referred to BB. Nearly all (98%) European life insurers said they had 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% said these would be supportive of allocations, while 12% said they will have no bearing.
The life-insurance companies surveyed typically focus their private-market allocation on Europe, the research found. 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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Ed Palmer, AlphaReal’s co-deputy chief executive and chief investment officer, added: “Insurance companies can provide the finance which is so critical in supporting growth in the real economy, by investing in sustainable infrastructure, real estate and other projects that will drive the green transition in Europe.
“It is clear from our research that life insurers acknowledge the importance of revising the qualifying criteria for secure long-income and private assets.”