Insurers keep their focus on core issues, like Solvency II and ESG

Ahead of the publication of the CAMRADATA Insurance CIO whitepaper, The Lens was in the company of four insurance CIOs recently and it was a very gratifying experience, with all of them aligned in their business strategies and steeped in knowledge.

Solvency II – the regulations that apply capital charges to assets in insurance portfolios, with the riskier assets gaining the highest charges – is a well-known ‘burden’ for insurance portfolios. It makes it expensive for insurers to hold higher yielding (riskier) assets.

With this in mind, the four CIOs agreed that yields will be lower for longer, perhaps even longer than after the GFC. As a result, insurers are said to be looking ‘outside the box’ for yield lift, while also trying to focus on downside risk because the potential for gains may be reduced. These views translate into a growing interest in securitised assets for insurers.

Underlying insurers’ investment approaches, the Lens heard, is a deep belief in responsible investing. It shouldn’t surprise anyone, the insurers felt, that well-governed companies that ‘do the right thing’ reward investors.  

ESG is now a prominent line of action for insurers. ESG investment is addressed across both equity and debt segments of portfolios, with asset managers engaging more closely with bond issuers.

As for Brexit and the Covid-19 pandemic, the four CIOs appeared to take these challenges in their stride on the basis that at investors will always face a list of pressures that entail consequences for volatility.

One final point, and outside of the investment sphere, the Lens heard there is much evolution taking place within underwriting. Mainly, firms are trying to focus not just on protection but also on prevention.  Spending is going into preventative technologies that can forewarn customers about impending losses.

*The Insurance CIO Whitepaper can be found here.