Splash the cash


ESG is rising up the priority list at insurance companies, just as it is everywhere else. But is anything less predictable changing in the insurance sector? The Lens found some insight into this question at the latest insurance breakfast held by CAMRADATA.

For a start, insurers want the ability to deploy cash more quickly and in a wider range of investments once the opportunity occurs. Initially thinking this was a reaction to 2018’s volatility, The Lens found that insurers expect nothing like the same levels of volatility next year. In fact most agreed there did not appear to be anything new on the horizon that could again cause major market disruption.

Insurers simply want more ability to make dynamic asset allocation decisions, it seems.

Dis-satisfaction with flexibility could be tied to less comfort with liquidity, however. Liquidity remains a major obstacle for the industry in making investment decisions – particularly with insurer’s growing interest in making illiquid investments, which is something else our roundtable heard.

There was a greater appetite for riskier assets more broadly but some asset classes are still no-go areas. FCA regulation and Solvency II mean that securitised assets issued in the US that no longer have a 5% risk retention piece, will continue to be an area that insurers’ shy away from.

Similarly, alternative risk premia is struggling to get a share of insurance pots. A confluence of poor relative performance and a lack of understanding among non-investment professionals at board level means that some insurers are facing pressure to withdraw from these strategies.

As indicated, after the rollercoaster ride of 2018, there is a general belief that calmer waters lie ahead.  Yet the mood was not overly optimistic. Expected returns in 2019 hover around the 2-3% mark.

Rate hikes are clearly still a concern heading into the New Year, but at least some see the dramatic sell off of tech stocks over the last couple of months as a buying opportunity.

However, on an industry level perhaps the biggest intrigue relates to potential changes in the asset class allocation of insurance portfolios. The question is whether  the focus on achieving greater returns will loosen the shackles placed on industry professionals and lead to increased focus on riskier and less liquid assets. Then again, the market volatility of 2018 might result in insurers seeking the safety of more traditional assets.

It could be exciting to see to what extent alternatives start to carve out a niche in the portfolios of insurers in 2019 and beyond.