Falling returns are increasing the pressure on insurers to invest more in new asset classes such as infrastructure, according to ING Investment Management.
Almost half (49%) of the UK-based fund managers and financial intermediaries surveyed by the investment management company said they believed insurers had increased their exposure to new asset classes over the past year. Only 1% said they thought it had fallen.
At the same time, over three-quarters of respondents said they expected insurers to further increase their exposure to these asset classes, which can also including lending to commercial property companies, over the next three years. More than one in ten (13%) expect a 'significant' increase over this period.
Jelle van der Giessen, deputy chief investment manager for ING IM, said: 'The trend within the European insurance sector over the past few years shows already some evidence of insurers searching for yield enhancement by increasing their investment exposures to infrastructure and mortgage loans in alternative to both equities and corporate bonds.
'In particular life companies that need to match long duration liabilities have shifted their asset allocations towards these new asset classes and we believe this is a trend set to continue.'
ING IM noted that this shift was coming against the backdrop of falling investment returns for insurers. Just 22% of fund managers and intermediaries it surveyed said they believed investment returns had 'bottomed out' and were not set to increase.
One in five (20%) said they expected further falls, while nearly one half (47%) expect returns to remain around the same for the next 12 months.
Respondents highlighted the impact falling returns have had on the dividends paid out by insurers, with 13% claiming they had had a 'significant' influence on the payouts, and 44% noting some contribution towards falling dividends.
Van der Giessen added: 'Falling investment returns have been a headache for insurers who are asking themselves when investment earnings will be able to increase and how to position their asset allocation to generate the necessary returns. In addition to this Solvency II regulation will also cause challenges, placing potential further pressure on dividends.'
