Investment


investment risks to improve their investment strategy and restore that buffer against potential underwriting losses.”


CAREFUL COMMUNICATIONS Because of the low yield environment insurance companies are having to make changes to lead them to a more economically matched position  equal to liability duration).


Haslip emphasises that it’s important that insurers are careful in their communications to shareholders to explain how any changes in their investment strategy are necessary and that economically these changes are low risk.


“The other thing we’re seeing is more interest in alternative investments,


such as hedge fund strategies and private equity strategies. Probably the biggest area we’ve seen interest in is private credit.”


This move into alternative investments comes with its own problems.


                   careful thinking.


“They’re looking at other ways of using the risk budget they have, both


from an economic view and also increasingly from a regulatory point of view, to employ it in the most effective way possible. What that leads to  and traditional credit, and those are being run next to core allocations that  and credit,” he says.


“But the real drivers for future income now tend to be the alternative allocations next to those traditional ones. There are several that play a   have been looking at in the past and some require a bit more effort.





from certain characteristics of the investment, such as infrastructure debt where they try to harvest the liquidity premiums.


“By going to a private market and putting their excess liquidity to work


 is a good match particularly for any long liability they have on their books.”


EMERGING MARKETS “The other area they are increasingly looking into is emerging market debt. What we’ve seen over the past year is that the issuance of emerging market debt has increased in quality and today about two thirds of this is investment grade, so insurers don’t necessarily have to go into the high   emerging markets,” says Liedtke.





percent yield target: emerging market debt and high yield, with the latter being associated with a lot of risk. The advantage of emerging market 


48 | INTELLIGENT INSURER | November 2015


“By going to a private market and putting their excess liquidity to work they can get between 50 and 80 basis points extra on their investment.” Patrick Liedtke, BlackRock


Liedtke points out that many insurance companies that wanted to


increase their investment income by investing in areas outside their usual areas of knowledge are now struggling with the need to increase the    educating existing and possible clients into the full spectrum of possible investments.


As this article was being written the Chinese stock market underwent a huge amount of volatility, with the Chinese government being forced to step in and slash interest rates in a bid to appease the markets. This caused a great deal of uneasiness in global stock markets as people thought back 


However, according to Carlos Wong-Fupuy, senior director, analytics


at AM Best, European insurers and reinsurers are well-positioned to withstand the current economic volatility, due to changes they’ve made in the investment portfolios in recent years.


 


 


“The majority of the large European re/insurers are currently extremely


well capitalised and are well aware of the speed at which liquidity can freeze up and how contagion effects can spread to both real estate and equities.”


 could make governments reluctant to raise interest rates and instead keep them low. In which case gilts will remain low and insurance companies            interesting.


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