@Pixabay
Insurers from around the world highlighted the safety, reliability, and versatility of investing real estate, especially in volatile times.
Clear Path Analysis’ new "Global Insurance Asset Management report", produced in partnership with Principal Asset Management, contains interviews with dozens of re/insurers from Europe, Australia, North America, and Latin America and charts the biggest challenges and opportunities that senior insurance investment and asset management professions noted in 2022.
The study identified four key themes that re/insurers were pouring resources into during 2022: ESG and sustainability, inflation, private markets, and real estate.
“There are three well-known opportunities that insurance companies have derived from investing in real estate and for insurance companies,” said Indraneel Karlekar, Global Head of Research and Portfolio Strategies at Principal Real Estate, on the report’s findings around real estate. “Number one is diversification, two is real income and three is direction of the investments.”
All of these topics were highlighted as key reasons for real estate being of great importance during the current market conditions of volatility accompanied by high inflation, increasing interest rates, as well as political instability in some countries.
“European insurers were the least interested out of all
the regions globally in real estate."
“Real estate has long been seen as a strategic allocation and a potential hedge against inflation – real estate investing was seen as one of the more positive strategies in the sector over the past several years,” said the report.
According to the research, however, this use of real estate as a portfolio allocation is very dependent on the specific country or region and its laws, markets, and consumer practices.
“European insurers were the least interested out of all the regions globally in real estate, despite the strong showing of the sector in the continent, especially in the UK. All German and Dutch insurers interviewed were invested in real estate,” the report said. “[But few European] respondents highlighted it as a key strategy, this could be because they were already heavily embedded in the sector and saw no changes on the horizon in this plan.”
This trend among European asset managers was highlighted earlier this year, as real estate is often seen as being ‘safer’ than other asset classes, and there was little appetite to move away from it.
“Real estate has often met institutional investors’ interest thanks to some peculiarities,” said Alberto Agazzi, CEO, Generali Real Estate, to Insurance Investor earlier this year. “It is inflation-hedged because it offers protection against the inflation momentum and is less subject to market volatility.”
Agazzi added that in certain market conditions, real estate offers more predictable returns as a long-term investment than other asset classes. “More importantly, it may also deliver a strong value creation component, connected to demographic aspects (e.g., in the residential segment, capturing new trends and ways of living) or to economic trends such as looking at the growth of logistics linked also to the e-commerce development.”
“More market participants see inflation as a long-term phenomenon,
which makes hedging assets more attractive."
This could be key at a time of market volatility with issues such as European energy uncertainty and the war in Ukraine, and the recent stress to the pensions market in the UK.
The sector was also key in the US and Canada. US respondents linked real estate to a more positive strategy in high inflation times: “More market participants see inflation as a long-term phenomenon, which makes hedging assets more attractive (e.g., commodities, real estate),” said one insurer.
Half of Canadian respondents listed real estate as a key strategy for them and specified that it was for the reason of a positive strategy in volatile economic times.
US insurers, meanwhile, have long been heavy investors in this market, which is buoyed by strong domestic demand and a large construction industry in the country.
Going into 2023, real estate is likely to remain a top priority for the market.
