Insurers are increasingly moving into alternative investments, Matt Malloy, head of global insurance solutions at JP Morgan Asset Management (JPMAM) said at a briefing in London today.
Driving this are low investment yields, the need to access new markets and the approach of Solvency II.
According to JPMAM, from 2009 to 2013 total investments by US life insurers in alternative assets, such as hedge funds, real estate and private equity, rose from just over $50bn to just under $70bn. Total investments in the same products by US property and casualty (P&C) insurers increased from around $17bn to $32bn. JPMAM did not provide figures for European life and P&C companies.
Gareth Haslip, head of UK strategy, global insurance solutions, at JPMAM, added that liquid alternatives were also increasingly popular, especially in the US where total liquid alternative funds in assets under management (AuM) have gone from $52bn in 2008 to an estimated $335bn in 2014. This worked out at around 37% growth per year, as opposed to the 14% growth per year for the total mutual fund industry. If this growth continues then total AuM could reach around $870bn by 2018.
According to Haslip, liquid alternatives have less restrictive or unconstrained investment mandates, use cash to reduce exposure and dampen volatility, and short securities using similar research techniques used to identify stocks to buy.
"Alternatives add yield, they add diversification and they add overall efficiency," Haslip said, but he also stressed that due diligence was important when looking at them. It was important for insurers which were investing more in alternatives to inform regulators, rating agencies and shareholders of any changes in risk profiles.