EEA insurers' direct property investments dropped in 2020 as uncertainty abounded

Channels: SAA/ALM, SFCR

Companies: Willis Tower Watson, Aviva

People: Amanda Blanc, Gareth Sutcliffe, Ashwin Belur

More EEA insurers invested directly in real estate equity in 2020 compared to 2019, however their combined investments dropped year-on-year by 5% to €125.9bn, according to research by Insurance Asset Risk.

From March to December 2020, there was a lot of conversation around the future of working arrangements, Ashwin Belur, director in the Insurance Investment Team (IIT) at Willis Tower Watson (WTW), noted.

Amanda Blanc, Aviva's chief executive officer, noted at numerous company results Aviva needing to use 30% less office space, for instance.

"There were questions around the value of all the office space– both prime and secondary - and how that value might evolve over time," Belur said. "And that might explain the drop in investments."

Even today, many people are still working from home, going into the office a couple of days a week, he continued. "So it is still probably an open question right now."

There was understandable nervousness amongst institutional investors about the prospect of some real estate sub-sectors following the onset of COVID-19, Gareth Sutcliffe, head of WTW's IIT, added.

With the pandemic the retail move to online has accelerated, and that has "affected one of the three traditional property sub sectors", he continued. And while valuations of prime office space are holding up very well, in the UK at least, it's not clear how prices will evolve over the long term, Sutcliffe said. How usage of secondary office space will evolve is unclear, too, he added.

Because of all these uncertainties, it is understandable why some investors may chose not to participate, Sutcliffe said.

"On the flipsides, I see some insurers thinking much harder about what might have been considered 'alternative real estate' sub-sectors, like healthcare," he said.

"Those sub-sectors are still emerging, so reallocating from the traditional ones to the newer sub-sectors takes time. Even resuming build-up of exposure in the traditional sub-sectors, once the uncertainty goes away, takes time."

Only 735 EEA insurers, out of the 1,932 solo entities included in Insurance Risk Data database, were investing directly in real estate equity in 2020 compared to 720 out of 1,889 in the previous year.

Over one third (34.8%) of the 735 entities' combined €125.9bn holdings were held by 13 French and 15 German insurers, with 18.6% and 16.2% of that total, respectively.

Yet as a proportion of their general account investments, real estate equity remains a low allocation for the French (1.5%) and UK (1.8%) industries. The highest allocator by proportion of their GA investments are Croatians (8.9%), Austrians (8.5%), and Cypriots (7.4%).

Financial and investment data for over 3,000 insurers in Europe and Bermuda is available to users of Insurance Risk Data, a database from Field Gibson Media, Insurance Asset Risk's publisher. It includes European insurers' financial and regulatory filings, including Solvency II SFCR disclosures, into a single, comprehensive and user-friendly database. Click here for a demo/free trial or for more information contact phil.manley@fieldgibsonmedia.com.

Vincent Huck