How insurance investors can tackle non-traditional asset classes
Kirill Savrassov, Senior Vice-President & CEO, Pheonix CRetro explores whether traditional asset classes are still meeting returns targets and what could potentially replace them moving forwards
Padraig Floydposted on Thursday, July 08, 2021
Pádraig Floyd: Given that fixed income credit is a large component of insurance companies balance sheets, what are the trends that you are seeing today?
Kirill Savrassov: The most important development we can see is the increase of interest for Insurance Linked Securities (ILS), one of the asset classes related to alternative investments.
Covid-19 has raised a significant question about the resilience to macro-economic cycles for the broader range of different asset classes which can be affected by any global event which can reflect into yields and spreads over the different asset classes.
Real diversity remains very important.
Padraig: What are the issues that insurance companies should be thinking about when considering non-traditional asset classes and in particular Solvency II capital requirements?
Kirill: With regards to alternatives, catastrophe bonds are an attractive investment by primary insurance companies.
When it comes to Solvency II issue, they can have certain capital benefits depending on an insurers profiles.
For primary insurance companies who do not carry too much catastrophe risks on their balance sheets, an investment into it can be an attractive proposition under Solvency II given that cat bonds don’t attract significant capital charges.
Padraig: Now that ESG is finally being integrated into investment strategies, do you feel that we are seeing enough innovation to provide opportunities to insurance companies?
Kirill: ESG has become a question for each board across the world.
All investors are going to have to live with these new elements of influence, but we have to be able to measure these instruments and how they are going to influence our investment activities, for good, not for bad.
"ESG has become a question for each board across the world."
This is something where the sooner we can get standardisation in place the better it will be for everyone as we need some clear form of measurement with regards to ESG activities for different types of company.
Padraig: Are there any trends that you are seeing within investment for insurance companies that are worth flagging up?
Kirill: Insurance companies have been trying to invest into all sorts of IT projects or developments. This is becoming so fashionable now that it can be seen as a very separate type of activity and investment.
"Insurance companies have been trying to invest into all sorts of IT projects or developments"
Should there be one, two or three large companies trying to do this, it would be one story but at this moment from what we can see almost each and every insurance company who is underwriting policies is thinking of coming into the IT field one way or the other.
I don’t want to sound too conservative when I say that I feel it could be too many, but it is one of the trends that exists on the market, and we can’t ignore it.