There is some evidence of a "search for yield" because of the low-interest rate environment, but there is no evidence of significant changes in the overall portfolio of insurers, Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (Eiopa) said at the organisation's annual conference in Frankfurt today.
"The investment choices seem to continue to fall within the risk-bearing capacities," he said.
He added that the movements in investment by insurers "do not seem to reflect herd behaviour." There are different strategies, he explained, some going for longer and illiquid investments, others preferring a move to shorten durations.
"If this really materialises it is good news from a financial stability perspective."
But low interest rates continue to top the list of the risks for the insurance sector. "Portfolio diversification could be good news provided insurers reinforce their capacity to understand and manage the 'new' risks," Bernardino said. "In fact, further investment diversification, in a controlled environment, could minimise the sometimes excessive concentrations in sovereigns and banks."
He said Eiopa had noted increased investments in infrastructure, as well as interest in direct lending, changes in the mix of the bond portfolio between sovereigns and corporates and reinvestment in lower-grade bonds, increased exposure to emerging market securities and a marginal increase in equity exposures.
Insurance undertakings can play an important role in fostering sustainable economic growth in the EU being well equipped to take different types of risks on the investment side by using assets of longer duration and less liquidity to match their truly illiquid liabilities.
Addressing the claim that the calibration of risk charges for certain asset classes is too prudent, Bernardino said, "We should remember that in Solvency II stand-alone risk charges are not the appropriate measure because diversification benefits need to be taken into account."
So the marginal capital requirement is a more appropriate measure. "If we base our analysis on the marginal return on regulatory capital, investments in high-quality securitisations, infrastructure debt and private equity are, at least on a relative basis, quite attractive," Bernardino argued.
He added, "From a prudential perspective we need to emphasise continually that undue incentives to buy any asset class should not be part of a risk-based, prudent regime. In my opinion this is essential to ensure sustainable growth of the EU economy."
