Insurers’ investment risk-appetite revealed by Insurance Risk Data

Channels: SAA/ALM, Managers, Outsourcing, Risk, Systems/data

Insurers have almost exactly half of their total risk under Solvency II at play in investment markets, a proportion they held steady during 2017, according to data presented in a new industry report being published this month by Insurance Risk Data.

Finland’s undertakings were the biggest investment risk-takers, by proportion of their basic solvency capital requirements, with 80%, according to analysis by Insurance Risk Data, the research and data arm of Insurance Asset Risk. Hungary’s were the meekest, with just 29%.

The UK sat in between, with 44%.

Sixteen countries had entities that could be defined first and foremost as ‘investors’ in 2017, by virtue of having the lion’s share of their regulatory risk in investing.

In thirteen of 32 countries subject to Solvency II, insurers increased their investment risk-taking, by proportion, in 2017. In three countries the proportion was static year on year.

Perhaps of more significance, though, was that only nine of 32 national industries allowed their proportional investment risk to move by five or more percentage points from the gauging at the ends of 2016 and 2017.

“Given insurers’ willingness to expend their risk in investing, it is little wonder that much of the policy debate around Solvency II at present involves asset classes,” said Phil Manley, research director at Insurance Risk Data.

“This makes it imperative that asset managers keep on top of the evolution going on with regulations around the risk of making investments.”

Manley added that, before engaging with an insurer about its investment habits and aspirations, asset managers should draw on reliable data sources to analyse the underwriter’s appetite for investment risk-taking, its asset allocation patterns, and the year on year variability in each of these.

Insurance Risk Data’s forthcoming report provides asset allocation details on large, mid-sized and small insurers in various countries.

Quantitative reporting templates, and services gathering the data from them, can be of assistance in conducting such otherwise time-consuming and resource-sapping tasks, Manley said.

“However one tackles it, doing the research gives a manager a decided advantage over its rivals, when seeking to invest part, or all, of a general account for its owner. Further important information about how an insurer views the importance of investing is often to be found in its narrative solvency and financial condition report.”

Data on investment risk-taking for each EEA nation, and entity-level insight into the proportional market risk for the 30 largest insurers in five countries in 2016 and 2017 is in a forthcoming report, Insurance Asset Management Insight -- European opportunities 2018/19, being published in November by Insurance Risk Data, the research and data arm of Insurance Asset Risk.

It is a comprehensive report on the relationship between underwriters across the EEA and investment managers combining proprietary data across 130 charts, with country-by-country chapters across 200 pages of forward-looking text and analysis. It gives managers and insurers alike detailed and valuable insights into working together for mutual benefit. For more details contact:

David Walker