The high level of return on capital make loans the most attractive asset classes under Solvency II, Bruno Charlin, chief investment officer, Axa UK, told delegates of the Insurance Asset Risk conference in London.
"Loans and some illiquid asset classes are clearly the winners of the game at this stage," Charlin said. "The capital charge we have on these assets is relatively small and yields are relatively high," he added, before pointing to the case of commercial real estate.
The position of loans is in striking contrast with that of asset-backed securities, which attract a relatively high capital charge and so are unlikely to account for a large share of insurers' portfolios in the near future, he explained.
In a keynote speech, Charlin said insurers must brace for a new stage of the post-crisis period in financial markets, characterised by an increase in volatility.
"In 2014 we have seen low spreads and low volatility, but 2015 is a different story. We are entering a period of high volatility, low spreads. The next stage will be high spread and high volatility," he said.
Charlin added that if the experience of Japan is anything to go by, yields on German bunds, which have increased more than tenfold in the last two months, from a record-low of 0.07%, could climb to 2% in a matter of months.