Insurers may invest more in alternatives under Solvency II

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Private bankingA third of European insurers expect to increase their allocations to private equity and hedge funds when Solvency II comes into force, despite the higher capital charges they might face for these investments, according to a study by BlackRock.

Insurers will be pushed to alternatives by the need to meet liabilities in the face of low bond yields, high equity volatility and poor economic growth, said the research.

“Against this backdrop, insurers need income to meet their liabilities and the research shows they may look to increase their allocation towards alternative asset classes such as hedge funds and private equity to achieve this,” said David Lomas, global head of BlackRock’s financial institutions group.

The study, which involved 220 respondents from insurers in 18 countries, also revealed widespread concern about the reporting requirements in the Solvency II legislation, which is scheduled to come into effect on 1 January 2014.

The study found that 95% were concerned about meeting the timeliness requirements and 94% were concerned about completeness for data. Meanwhile, 92% were concerned that the data they rely on third parties to provide, will not meet the Solvency II requirements. This may mean insurers will be forced to limit their investment strategies.

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