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How insurers invest – capital/risk management the big driver
An academic report into the investment management of Australian general and life insurance companies’ statutory and regulatory funds shows a stable environment over the past three years, with capital or risk management requirements likely to be the major driver of any future asset allocation shifts.
The report includes a survey of 14 life and general insurers with funds of about A$100 billion, operating mainly in Australia. It differentiates between general and life insurers, which adopt significantly different asset allocations. Approximately half the money overseen by the 14 respondent companies was outsourced.
Like super funds, the life insurers reduced allocations to shares and increased fixed interest in 2010 and 2011, but the insurers kept the trend going in 2012 when most super funds started to adopt a risk-on approach. General insurers, which have a much lower asset allocation to shares than life insurers, reduced this in 2010 but increased it slightly a year later. Fixed interest allocations, by far the largest asset class for general insurers, were reduced each year in the period and cash allocations were increased.
Asked what their major drivers would be for any proposed change to asset allocation, the respondents’Â top response was capital/risk management (36 per cent), followed by market volatility (30 per cent), and regulatory issues (23 per cent).
The report, overseen by John Evans, associate professor of risk and actuarial studies at the Australian School of Business, Uni of NSW, was commissioned by Investment Innovation Institute (i3) and will be distributed to participants only at i3’s second annual Insurance Investment Roundtable in Sydney on June 19.
TeikHeng Tan, executive director of i3, said there was a knowledge gap with respect to how Australian insurers managed their investments. Unlike super funds, insurers faced a complex multitude of other considerations, such as different regulation, capital management framework, liabilities, risk and so on.
For inquiries for the Roundtable, at the Sheraton on the Park, contact TeikHeng Tan:Â [email protected]
