Athos Larkou’s Post

The European #insurance sector’s exposure to the rising risks of commercial real estate (#CRE) is low, at about 4% of assets, with most insurers facing minimal risk to capital or ratings from falling CRE valuations. Just under half of the exposure is direct. Indirect exposure is mostly through holdings of CRE sector equities and loans. CRE is in the spotlight due to steep valuation declines in some segments, with implications for lenders and institutional investors. READ MORE: https://lnkd.in/ejFV2_BS Full report (June-2023, subscribers only): https://lnkd.in/ex-xYtSK Analysis by Manuel Arrive, CFA and Federico Faccio

Check out our latest thoughts on European insurers' exposure to CRE. The European insurance sector’s exposure to the rising risks of commercial real estate (CRE) is low, at about 4% of assets, with most insurers facing minimal risk to capital or ratings from falling CRE valuations. Insurance sectors are generally less affected than some banking sectors. Even the US life sector, where exposure is materially higher than for European insurers, is unlikely to face pressure on ratings, and CRE has not yet featured significantly in European insurers’ 2023 results announcements or audience questions.

At about 4% of assets, the European insurance sector faces low exposure to the rising risks of commercial real estate (CRE), according to Fitch Ratings, with most insurers facing minimal risk to capital or ratings from falling CRE valuation. #insurance #reinsurance

According to credit rating agency AM Best, a decade-long trend of insurers moderately increasing their private credit holdings continued to be seen throughout 2023, comprising 44% of the bonds held within the insurance sector, compared with approximately 27% in 2013.

Moody's predicts a 2024 stable outlook for the insurance brokerage sector, underpinned by constructive global economic growth, a favourable commercial property & casualty (P&C) rate environment, and stable EBITDA margins.

What is the role of private markets at different points in the credit cycle? Anthony Beachey look at what insurance investors need to be aware of, and most careful of, when trying to use a private markets allocation strategically? Insurers’ exposure to private credit has exploded over the past couple of decades. According to the Mercer and Oliver Wyman 2024 Global Insurance Investment Survey, 73% of insurers already invest in private markets or plan to do so in 2024, continuing the trend seen in the 2023 survey. Moreover, that trend is set to continue in the long run, according to analysis by Moody's’s. The ratings agency found that almost 80% of insurers plan to increase their holdings of at least one class of private credit over the long term. So, what should insurers be doing? We explore the issue in full - with comment from mark meiklejon, Head of Private Market Investment Specialists at Aviva Investors, Oliver Little, CAIA, Head of UK Insurance Solutions at Neuberger Berman, Laura Parrott, Head of Private Fixed Income at Nuveen, a TIAA company, and Marc Lickes, Managing Director, Private Debt, StepStone Group. #privatemarkets #creditcycle #investmentoperations #investmentcycle #investment #insurance #credit #marketallocation Read the article in full and see their insights here 👇

European #Insurance Sector’s Commercial Real Estate Exposure Is Low at About 4% of Assets. CRE is in the spotlight due to steep valuation declines in some segments, with implications for lenders and institutional investors. Some banking sectors, notably those in the #usa and #germany, have significant exposure but insurance sectors are generally less affected. Even the US life sector, where exposure is materially higher than for European insurers, is unlikely to face pressure on ratings, and CRE has not yet featured significantly in European insurers’ 2023 results announcements or audience questions. Falling CRE valuations may dent insurers’ capital through unrealised losses on both direct and indirect exposures in shareholder funds. There is little impact from exposures in unit-linked or with-profits funds where losses are largely borne by policyholders. We do not expect European insurers to be forced sellers of CRE exposures in shareholder funds as they have ample liquidity. Most asset portfolios are dominated by highly liquid assets, particularly investment-grade bonds, which means that realised CRE losses are unlikely in the near term, except in the case of defaults. Even severe CRE losses, whether unrealised or realised, would not have a material impact on the European insurance sector’s overall capital given the low average exposure. We estimate that an arbitrary 50% write-down of all CRE exposures, direct and indirect, would erode less than 10% of the sector’s aggregate capital base. Nevertheless, a full write-off on a potentially oversized position (e.g. Signa Holding GmbH) could reflect poorly on an insurer’s asset risk selection. Some markets and individual insurers have significantly higher direct or indirect CRE exposures than the sector averages. The #austrian, #Swissand #belgian markets have the highest direct exposure, although they also have above-average capital, which mitigates the risk. Several of Europe’s largest #insurance groups have fairly high exposure, both by amount and relative to capital. https://lnkd.in/exJ-yvV8

Private equity's growing influence in the insurance sector is transforming the industry, but it brings significant risks that demand regulatory attention. The Bank of England's Financial Stability Report outlines critical vulnerabilities, including solvency challenges and the risk of 'fire sales' in times of stress. From a legal perspective, enhanced disclosure requirements are paramount to mitigating these risks. Regulators must prioritize transparency in PE-backed insurance transactions to safeguard policyholder confidence and ensure compliance with solvency standards. A proactive legal framework can strike the necessary balance between innovation and systemic stability. Learn more below:

We often get asked how #Fitch's credit ratings for #Insurance holding companies and debt/hybrid securities differ in Bermuda, Europe and the US. Here's a clear compare and contrast from my colleagues Brian Schneider, Graham Coutts and Jim Auden.

In our latest Insurance Multi-Asset Outlook, Tim Antonelli, Head of Insurance Multi-Asset Strategy and Portfolio Manager, considers insurers' renewed interest in risk assets and offers his views on areas that may be worth a closer look. #insurers #outlook #assetallocation