Ben Grainger: With pension risk transfer volumes set to be c£30bn per year for at least the next 10 years, insurance investors have a massive appetite for credit, which cannot be met by public markets.
Whilst private markets bring complexity and new risks, they also bring opportunity through potential higher risk adjusted return, diversification, and facilitation of a more active way for insurers to meet their ESG commitments.
“Insurance investors have a massive appetite for credit, which
cannot be met by public markets.”
Also, the typically long-term nature of private debt investments necessitates a shift for investments to focus on long term value creation.
Ben: Insurance investment in private debt has allowed them to support socially important sectors (eg Social Housing) whilst generating the long term stable cash flows they require to back their annuity business.
“The closer relationship between borrower and lender in private debt markets can allow investors to take a more active role in influencing transition.”
In addition, the closer relationship between borrower and lender in private debt markets can allow investors to take a more active role in influencing transition than public markets allow, and building on this can allow insurers to align ESG linked debt covenants to their own targets.
Ben: Building on the points above, insurers’ sustained high demand for credit assets coupled with a supply shortfall of public and private assets have led a number of insurers to explore the use of equity investment with their surplus funds as a means of generating long term debt assets to back their liabilities.
“Influence allows insurers to demonstrate they are providing
ESG leadership.”
Taking equity investments will give insurers significantly more influence to drive transition. Used effectively this influence allows insurers to demonstrate they are providing ESG leadership by actively driving change and creating synergies across their investments.
