EEA insurers had €4.7trn ($5.3trn, 2019: €4.5trn) invested in bonds in 2020, €2.5trn of which was in govvies and €2.2trn in corporates, according to research by Insurance Asset Risk.
Alexandre Mincier, global head of insurance solutions at Invesco, says that the debate about moving away from core fixed income to alternatives investments has been around for a while, and it is clear that the move needs to happen, even if the industry is slow moving on this topic.
"Now the problem is that in the alternative space the volumes are fairly low compared to the demand," he says. "The largest insurers have to invest €45bn to €50bn every year, so it's quite difficult for them to fund such a volume, or even half of it, in alternatives, so they may have to invest in things they don't like."
An added complication is capital considerations, Mincier says. Insurers are left with the dilemma of finding enough volumes in assets that cost a lot of capital and provide the return they need.
French insurers were the highest allocator to bonds, looking at regulatory fillings of the 1,889 solo entities across the EEA in Insurance Risk Data's database. At the end of 2020, they held €1.5trn worth of bonds (2019: €1.4trn), €742.3bn in govvies (2019: €733.9bn) and €687.2bn in corporates (2019: €699.4bn).
That was far ahead of Germany's €953.8bn bond holdings comprising €420.2bn in govvies, and €508.6bn in corporates, and Italy's €602.1bn, made up of govvies worth €431.7bn and corporates with €157.1bn.
Of the top 50 insurance undertakings investing in bonds across the EEA, 11 were French accounting for 23.2% of the government bond holdings of all solo entities across the EEA. No other country in the economic zone accounted for more than 10% of the total bond holdings.
Unsurprisingly, French insurers recorded the highest concentration of bonds in their general accounts (31.4%) – 0.7 percentage point less than the previous year. Germany came second, with bonds making 20.1% of total GA investments – 0.3pp higher than in 2019.
Looking at govvies alone, this seems to be a particular favourite of eastern Europe's insurers, where the concentration of such holding in the total GA is around 80%.
Unsurprisingly, Italy figures highly here given their love for BTPs. Spanish insurers also display a strong love for government debt.
The data doesn’t provide details on the origin of the debt, so we can’t tell for sure how much of the 53.1% of govvies in Italian portfolios is actually domestic debt. But combining all govvies holdings across Europe, and looking at the country of insurers of the 50 largest government bond investors, one sees that just 14 French underwriter account for nearly one-quarter (23%) of all government debt held by EEA insurers.
Turning to corporate bonds, northern Europe steps in. The Nordics have 30% or more of the total GA in them, while the UK and Ireland also display strong appetite.
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.