In the face of low returns, insurance companies deepen relations with private stock managers and assets, and they turn into alternative investments amid organizational opposite winds.
Life insurance companies used to be conservative investors.
For decades, they relied on long-term bonds-safe, firm and predictable-to match their policy obligations. However, with the low interest rates after the 2008 financial crisis, traditional investment models are no longer providing adequate returns.
Insurance companies are now adopting alternative investments such as private debts, infrastructure and real estate – as partner in partnership with asset managers and private stock companies to increase the return. This transformation transforms the industry, which increases the chances of profit and organizational fears, as insurance companies take more dangerous and more difficult assets to increase investment revenues.
“With the low interest rates after the great financial crisis, the cost of insurance companies’ obligations before 2008 was high,” says Ramnath Balasubramanian, the global co -leader for life insurance and retirement at MCKINSEY & Company. “Insurance companies needed to find ways to risk their public budgets and spread capital more efficiently.”
Slowly but steadily, they find ways. The solution was for most insurance companies with two parts: selling areas of old -cost Old obligations for reinsurance for capital, and investing their installments in alternative assets: the most prominent of which are private debts with higher returns and risks than bonds at the investment level. Insurance companies across the global markets build, buy and partnership on their way to improve investment returns over the past decade.
Special shares pay the change
The US private stock companies have been a major incentive to shift in the world insurance industry. Large companies such as Apollo Global Management, Bookfield Reinsrance and KKR insurance companies have launched or bought them since the financial crisis; Others, such as Blackstone and Carlyle, have taken minority classes in other insurance companies.
Operating model is clear and direct: Buying Legacy books of insurance obligations and re -investing basic assets in higher return investments. Since the financial crisis, private stock companies have completed more than $ 900 billion of transactions that obtain insurance obligations worldwide, according to MCKINSEY Research. They now have a 13 % stake in the US-1 % insurance market in 2012-and 35 % of new sales of fixed and fixed pensions in the United States, according to consulting reports.
“The search for the return was the motivation,” says Megan Ninan, the Fitch Ratings, who provides class assets. “The success he has achieved in terms of revenues was great, and immigration in the features of the insurance portfolio is still continuing.”
It can be said that investing more in private markets and alternative assets increases the diversification of insurance companies, but it also increases the risks. “In general investment portfolios are less liquid,” Ninan notes. Special loan insurance companies – most of them are floating interest rates – continued to grow with high prices.
“In the end, this depends on what the investor is looking for,” Ninan explains. “If a (Insurance Company) suffers from a lack of financing and needs higher returns that cannot be obtained only in public markets, they can replace alternative assets higher to meet this return obstacle.”
The deportation of the insurance portfolios has now spoke towards alternative investments across the global markets. Some insurance companies have built investment capabilities in obtaining investment themselves, while others cooperated with asset managers to provide these capabilities, and others have still handed over asset management to completely third parties. “There is a wide range of models on the market now,” says Palac -Octian. “Insurance companies depend on the options on the start mode.”
The French multinational insurance company Aksa decided that it is better to get out of asset management work. In December, the group sold Axa Investment managers to BNP Paribas for 5.1 billion euros (about $ 5.5 billion) to manage its assets to move forward.
The Italian insurance giant, on the other hand, cultivates asset management operations. The company has recently made many major acquisitions, including a deal to purchase the investment manager from Cathay Life Insurance last year. GENERALI also paid $ 320 million for a 77 % stake in MGG Investment Group earlier this year. The American company focuses on direct lending to medium market companies. Like an increasing number of insurance companies, GeneRali builds its direct residence platform.
In January, General announced a transformative deal, which agreed to integrate its asset management operations with Natixis investment managers, owned by Groupe BPCE. The joint project will manage 50/50 1.9 trillion euros in assets, making it the ninth largest asset manager in the world.
The insurance company said in a statement in January, “The new entity will be in an ideal situation to expand its activities for its third -party customers, thanks to a general commitment to contribute to a total amount of 15 billion euros in the so -called seed funds over the first five years to launch new initiatives and investment strategies in the alternative investment sector (especially in private markets).”
Since private debt markets are developing into new areas such as asset -based lending and equipment rental, adult associate managers will increase the road. Large transactions between insurance companies and asset managers in Europe are only a more clear sign of the unification of industry and restructuring. Smaller deals for re -insurance risk and expansion of investment in insurance occur through global markets.
Japan leads the growing Asian market
Asia is the next border, especially Japan, which has about 3 trillion dollars in the life reserves and the applicable chief, according to the Association of Ecuans (SOA). To date, most of the activity there was on the side of responsibility for the budgets of the insurance company as Japanese insurance companies are more comfortable in reinsurance transactions. Modern recent reinse deals by the KKR owned by Global Atlantic in the amount of approximately $ 4 billion of Manulife Japan policies are all life, and 700 billion yen (about $ 4.7 billion) of insurance points in Japan by the reinsurance group in America.
Service estimates that up to $ 900 billion in Japanese insurance obligations can be reinforced in the coming years thanks to the new regulations that impose higher capital reserves that enter into force this year.
The global insurance industry is still on the path of transformation. “I think we are somewhere in the middle roles of this development,” says Palasopramanian from McKinsey. “Many insurance companies are still determining whether to build, buy or partner of new investment capabilities, and deals are now in both directions.”
Organizers track the risks
All activity makes insurance organizers’ functions more difficult. Asset insurance obligations have become more mysterious and more difficult in value as companies have expanded investment landscapes. The National Insurance Commission (NAIC) in the United States launched a working group in February to create principles to update the risk -based capitalist sheets of this industry.
“The period of low interest rates that followed the great financial crisis created a trend in the industry to search for the return in the investment portfolios, which led to a significant shift in the complexity of investment strategies for insurance companies, which led to the risks of more liquidity more than historically seen,” said Wisconsin Insurance Commissioner Nathan Hoodik, a work squad, in a club statement.
The Bank of England, through which the Charity Organization Authority works for financial services, warned in the financial stability report last year of the increasing risks of insurance companies owned by private shares and in the broader industry due to the shift towards private term investments. “This trade model, despite promising benefits, has the ability to increase the fragility of parts of the global insurance sector and clarify the regular risks if the weaknesses are not addressed,” the bank mentioned.
Currently, insurance companies sees opportunities in alternative investments that they deserve risks. Insurance companies and asset managers are increasingly to build better investment platforms, but they also make natural partners. The former generates a lot of money while the latter focuses on obtaining better investment returns in public and private markets.
“The deals will continue because they are beneficial to both parties,” says Ninan. “Obtaining insurance companies with long -term investment prospects get higher returns for the patient’s investment, and managers collect fees alternatives to assets.”
A match made in heaven … at the present time.
