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Panellists at a recent webinar discussed what changes to Solvency II could mean for insurance investors.
The complications around Solvency II have been of key concern to insurance investors since the regime was introduced in the last decade. But how can insurance investment teams find opportunities to loosen regulation and solvency requirements when taking more risk in investments.
In a Clear Path Analysis webinar, in association with Vesttoo, “Diversifying with Non-Catastrophe Insurance-Linked Assets” several panellists including Huayin Liu, Senior Investment Portfolio Manager, Aviva Investors, Nick Dixon, Former Investment Director, Aegon and Tom Sumpster, Head of Private Markets, Phoenix Group were joined by Robert Hauff, Portfolio Manager at Vesttoo to discuss some of the macro themes around diversifying with non-catastrophe insurance-linked assets
“[The] main theme was about a broadening of the risk appetite moving down the curve from Triple B into non-investment grade world down to the double B.”
The panellists were asked whether they see an opportunity to go beyond Solvency II to loosen regulation and requirements when taking more risk in investments to establish a more liberal capital market given that now these items can be relatively restrictive
“In February, John Glenn, the economic secretary for the treasury, laid out thoughts on more flexibility to Solvency II lenders,” said Tom Sumpster, Head of Private Markets, Phoenix Group. “His main theme was about a broadening of the risk appetite moving down the curve from Triple B into non-investment grade world down to the double B, so providing a range of opportunities and capital relief for Solvency II investors.”
“We are reweighting to the private markets business. This is looking at private equity, infrastructure equity, real estate equity."
The detail of this will be in a consultation paper due to be released soon, which will allow the industry to provide an investment strategy.
“This will be to ensure that investment is retained in this country and that we do a lot more Sterling investments, which is right to support the levelling up agenda that is infrastructure focused,” Sumpster said. “Outside of Solvency II capital and how we want to invest for our other savings products, we are reweighting to the private markets business. This is looking at private equity, infrastructure equity, real estate equity and how we can generate additional premiums and yield going into these private markets, which are here to demonstrate that you can get that additional premium to public markets.” These, he emphasised, form a significant portion of people’s portfolios.
“Asset owners, insurance and pension schemes represent the institutional share of money where there is a social role,” said Huayin Liu, Senior Investment Portfolio Manager, Aviva Investors. “The regulators will be thinking about this and want to encourage the funding.”
“In the Chinese insurance industry, the regulatory trend encouraged
investment into green finance."
Liu said the green/sustainable financing trend is currently popular and as an investor, they expect to see more loosening in terms of the regulatory side in terms of guiding investment into these areas, which he believes will be beneficial.
He added that he keeps an eye on the Chinese markets for similar trends and spotted an emerging fashion there too. “In the Chinese insurance industry, the regulatory trend encouraged investment into green finance. Then they give a haircut with capital charges associated with those investments. We could see this happening here, which would also have a ripple effect in terms of what we can do for our clients.”
Sumpster was optimistic in his summing up of the topic. “The markets are opening out and there are more fund offerings, so choosing the right investment manager is crucial, creating long term relationships with them is also key, and then following these investment managers to new territories in a stepped process,” he said. “We look after conservative money so we must be careful with the way that we use it.”
