Solvency II: Insurers seek bond diversity and tactical allocation

Family_insuranceInsurers are looking to diversify their fixed income portfolios to deal with low rates, a survey found, reflecting a trend of recent years.

Axa Investment Managers surveyed 122 insurance companies and found 36% wanted fixed income diversification and 38% would use more tactical asset allocation.

The asset manager said that low rates and regulation remained the two most important challenges that insurers faced with regards to their investment portfolio.

However, the largest cohort responding to the survey (59%) said they expected to use more alternatives to address yield challenges.

Nearly 40% of respondents cited “outsourcing a greater proportion of the portfolio” as a direct impact of the Solvency II regulation on their investments.

Similarly, 53% said that they did not expect to see a reduction in the number of external managers they used for their portfolios as a consequence of Solvency II.

Cerruli Associates recently said a lack of understanding of insurers’ needs was holding up outsourcing.

Bettina Ducat, global product head at Axa IM, said the firm was seeing demand from insurers for less liquid strategies.

“Senior loans, private debt strategies and real assets thematics like infrastructure debt and real estate debt are proving popular as a way to capture extra yield,” Ducat said.

The demand for illiquid strategies and alternatives echoes another survey finding that the majority of insurers (56%) were not moving towards passive investment to deal with Solvency II.

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