The conference was held in London on 13 June and highlighted how investment opportunities still abound for insurers in an environment of heightened volatility and a bleak macro outlook for the coming months. Vincent Huck reports
Central bank action and the potential for a recession in the coming months dominated conversations at the Insurance Asset Risk EMEA 2022 conference.
The first in-person IAR conference since 2019 started with a keynote speech by Swiss Re chief economist for Europe, Charlotte Mueller, highlighting how the US Federal Reserve's actions as a result of a tight labour market represented the highest risk of having a hard landing – which she believes will happen.
The next panel on inflation threw up a wider range of views. Foresters Friendly chief investment officer (CIO), Corrado Pistarino, said the globally higher inflation seen right now is transitory and there was "still a chance to achieve a soft landing".
A later CIO panel highlighted the increased interest for real asset investments in the current environment. While Johnny Chow, CIO of L&G retirement, said logistics and life science assets have seen greater demand during the pandemic and will continue to be an area of opportunity, Ageas CIO Wim Vermeir said he could forsee some difficulties in this space, with many companies in the sector overfunded.
Vermeir bemoaned the current focus on reducing portfolio carbon footprints. Selling off the most polluting holdings and the portfolio might be considered a "green move", but what is actually achieved by doing this, he questioned.
"Our most polluting holdings at the moment are in the electricity sector, but we need electricity for the transition, so I can't sell those," he said. "We should focus more on the transition and how to achieve it rather than the final objective [of a green portfolio]."
A panel on net-zero 2025 targets re-emphasized the idea that engagement is key for achieving the transition.
And although many point to the lack of data as the main hurdle for sustainable investing, it should not be an impediment for action.
Scor's global head of sustainability, Michele Lacroix, said: "You can't reduce sustainability to metrics, because sustainability is as much about the impact of ESG on your business as the impact of your company activities on ESG, so you'll always have to explain what you want to do and how you want to achieve it."
The lack of data is in fact a blessing when considering 'S' investments as opposed to climate-related investments, panelists said during a session on social investing.
Panelists suggested that social investing is qualitative, so not having quantitative data makes it easier to approach the investment opportunities, deploy the capital, and communicate actions to the outside world.
In the current inflationary environment, panelists noted the fixed income sector had become "exciting".
Nohman Iqbal, senior product specialist for private debt at DWS, highlighted how the usually sleepy fixed income markets had woken up, creating opportunities in the senior debt space.
For an industry such as insurance, regulation can sometimes create a hurdle, panelists said—but agreed it is important not to oppose the industry and regulators. Both set of stakeholders should focus on policy holders protection, according to David Otudeko, head of prudential regulation at the ABI.
Even with all that in mind, regulators could ease the burden and help insurers deploy in some asset classes Lauri Saraste, director of ALM at LähiTapiola said. He highlighted some of the asset classes he had in mind.
The appetite for illiquid assets shows no slowdown as well, a panel on complexity risk in illiquids said.
"Insurers are increasingly stepping in investments that were reserved for banks, which is the main driver of complexity risk in insurers' portfolio," Erik Vynckier, board member at Foresters Friendly Society.
Andrew Bailey, director of financial risk at Just Group, said collaboration with asset managers was key. "Investment managers should come to us with the right understanding in order not to overwhelm the risk function at insurers."
Ashish Dafria, chief investment officer at Aviva, also pointed to the fact that many illiquid assets had not gone through a full credit cycle, "and that has a huge impact on the way we think about those, and how we form our understanding of the underlying risk".