The set of European insurers concentrates about 80% of their portfolios in bonds (63.6%). And in stocks (15.1%). Their bond holdings are distributed almost in the same proportion. Between public debt and corporate bonds .

Last December, the latest “Financial Stability Report” from EIOPA was published. It contains information that allows a good X-ray of the existing biases: European insurers accumulate assets in these portfolios. It is for an amount slightly higher than 10 billion euros. They are globally the main institutional investor in the European Union.

There is a differential structure by countries. And it is observed in the asset allocation of insurance investment portfolios. A general trend in recent years is the growing shift from lower risk asset classes to higher risk ones. This is a consequence of a scenario of low interest rates. As eloquent as the one shown in the following table.

The figures warn of relatively high weights (above the 90% percentile). Or low (below the 10% percentile). To a certain extent, they are outliers. This, with respect to the behavior observed in other 31 countries. We will focus our attention on the six countries that account for the bulk of the European insurance sector.

European Union

  • United Kingdom
  • Germany
  • France
  • Italy
  • Netherlands
  • Spain

Investments’ directions

In countries like Italy and Spain, investment in government bonds clearly dominate. In the United Kingdom, Germany, and France the bias is towards conventional corporate bonds. Let us include the uniqueness of the high weight that both the United Kingdom and the Netherlands have. They dominate in securitizations of loans. Also in mortgages within fixed income assets. If we do so, that bias would increase.

Undoubtedly, there are both idiosyncratic reasons. Market structure, and management characteristics, also. They all can explain this profile. However, there is also an explanation for the greater preference is italy and spain for government fixed income. Their levels of structurally higher interest rates. 

An additional manifestation is the local bias of their investment in public debt. The proportion of their own governments’ public debt portfolios is very dominant: it exceeds 80% of the total public debt portfolio in these two countries. While cases such as Germany or the Netherlands do not reach 40%.

 European insurers

Equities

Regarding the relevance of equities, we find very different situations. Spain is standing out at one extreme due to its low relative level (just over 5%). Germany is at the other extreme, where investment in shares exceeds the 21%.

Interest rates that are no longer low, but negative. They tidely stain the grid of returns offered by government public debt. This caused a shift in investment towards longer-lasting assets. Private fixed income (which already has extraordinarily low spreads compared to risk-free assets). Also, a growing search for alternative investments in unlisted stocks, mortgages or infrastructure.

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