European insurers’ illiquid assets show upwards trajectory

In what could be a pivotal development for the insurance industry, insurers have encountered a range of influences that have raised the profile of illiquid assets on their balance sheets.

In this context, AM Best recently surveyed Europe-based insurers managing approximately EUR 4 trillion of financial investments, loans and real estate. A new Best’s Market Segment Report, European Insurers and Illiquid Assets – An Upwards Trajectory, reviews the forces that have been acting on insurers to evolve the role of illiquid assets and sets out some of the insights provided by AM Best’s survey.

Tony Silverman, associate director, said: “An initial insight is that insurers are overwhelmingly planning to either increase or not change their holdings of illiquid assets, with the weighted (by investment assets) totals indicating an even more emphatic intention to raise holdings.”

AM Best expects that this expansion of allocations to illiquid assets is likely to be a highly visible feature of the industry over the next five years. The report notes that half of European insurers, representing over 95 percent of investment assets, are looking to increase illiquid assets by between 2 percent and 15 percent of their funds.
Insurers managing around 65 percent of survey respondents’ investment assets are looking to increase illiquid assets by 5-15 percent of funds.

Silverman added: “In view of the investment environment, AM Best sees an increase in illiquid assets as, at least directionally, an appropriate and usually positive development. However, the weight of expectation for a material increase in allocations clearly brings with it a potential for more significant changes for some insurers over time and, in stress scenarios, pressure on credit ratings from investment losses in illiquids.”

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