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European insurers put investment mix under a microscope


Most European insurers are examining changes to their investment mix to adapt to the adverse investment climate, which includes record-low interest rates that challenge the earnings and capital adequacy of insurers, Standard & Poor's Corp. said Wednesday in a report.

But on average, most European insurers' strategic asset allocations have remained broadly stable the past five years, S&P said in the report, “How West European Insurers Are Scrutinizing Asset Allocations and Business Models in Today's Adverse Environment.”

According to the report, which studied about 40 insurers rated by S&P, adapting to the challenging investment environment “is not as easy as chasing after higher-yielding investments.”

Insurers seek to match their investment strategies to the profile of their liabilities, and Solvency II — the risk-based capital regulatory regime that came into force for insurers and reinsurers in the European Union in January — requires insurers that invest in riskier asset classes to post more capital, the report noted.

“What's in flux are product features such as the duration of liabilities, guarantees, liquidity and the extent of risk transfer to policyholders,” Lotfi Elbarhdadi, global ratings analyst at S&P in Paris and author of the report, said in a statement.

While most European insurers seem reluctant to significantly add more asset risk because of potential capital charges under Solvency II, many will continue to take action on product structure and pricing and take management actions such as closing books of business, the report noted.

It would “be an exaggeration to talk about a sudden transformation of business models,” Mr. Elbarhdadi said in the statement.

“Constraints such as the highly competitive market across Europe, increasing consumer protection mechanisms, evolving regulation and higher security from local regulators are likely to result in rather gradual changes,” he added.

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