Insurance Asset Risk 2021 EMEA conference: Day 1 round-up

Channels: Regulation, Risk, SAA/ALM

Day 1 of the Insurance Asset Risk 2021 EMEA conference has come to a close, with panellists highlighting a challenging investment environment for insurers and the risk of bad apples in investment portfolios.

The annual conference is being held virtually this year and is free to attend for insurers and regulators. More information the conference and how to access it is available here.

The day kicked off with a panel on monetary and fiscal policy intervention where panellists agreed that central banks stepping-in in times of crisis is now a norm.

But they questioned whether this strategy has a limit and if capital market stability should take precedent over all central bank's objectives.

It's a challenging environment for investors to navigate with inflation risk on the rise and interest rates remaining low. However, insurers have a competitive advantage over other investors due to the long-term nature of their investments. It's a unique position which can help to go more into private markets and accommodate the ESG journey.

Although the Bank of England governor Andrew Bailey hinted at potential hikes in rate to counter inflation risk, panellists suggested they believe inflation to come down in the coming year to year and half. Still, they expect inflation to remain at higher levels on average than before the COVID crisis.

Central banks have reached the limit of their willingness to lend to governments, but whether that means a greater or lesser net supply of government bonds for private investors remains to be seen, according to panellists. An issue which is not exclusive to govvies, with corporates having borrowed cheaply and for the long term, corporate bond issuances might also slow down in the future.

More concerningly for insurers investors is the 'zombification' of credit markets, with some companies still in business thanks to government support but bound to be bankrupt once that support is withdrawn.

Credit market investment is about avoiding the bad apples in the portfolio, the audience members were reminded. "In this low yield environment you will need many, many good apples to offset the losses of just one bad apple."

Day 2 will kick off at 9am on 19 October (London time).

More information about the event and how to attend, is available here.

Vincent Huck