InvestmentsOct 20 2014

Insurers increase EM exposure

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Over half of insurers plan to increase their investment exposure to emerging markets over the next 12 months, according to a report from financial services provider State Street.

Of the senior insurance executives surveyed, 53 per cent stated that they are looking to expand to emerging markets, and 5.3 per cent said that this will be their first time investing in emerging markets, while 4.6 per cent want to decrease their exposure.

Olivier Paquier, head of SPDR ETF for France, Monaco, Spain and Portugal at State Street, said, “Emerging Markets are a new type of exposure for insurers. The real question isn’t so much which particular emerging markets they should invest in, it is more about how to access those markets given the issues of liquidity, insurance and size.

“The answer is twofold. Emerging market government bonds are definitely in favour with investors at the moment and some corporate bonds are also popular with investors who have a good understanding of emerging markets and their cycles.

“The second question that needs to be asked is what currency they want to be exposed to. Local or soft currency is seen by many to benefit from an FX rebound and hard currency is also highly regarded for insurers that do not hedge their FX. Finally, global exposures, whether government or corporate bonds, are popular as insurers seldom have a regional macro view of emerging markets. Again, it’s a new exposure for them.”

Alternatives are also becoming a more appealing investment, with 20.5 per cent of respondents stating that they will increase their exposure to alternatives, 1.5 per cent of which will be for the first time.

Exchange traded funds (ETFs) are also a primary investment management change, as 21.2 per cent of respondents are planning to increase their exposure to ETFs. Insurers in Europe, the Middle East and Africa (EMEA) are most likely to increase their exposure to ETFs – 38.3 per cent of insurers in EMEA plan to increase their exposure, compared with 14.3 per cent of insurers in the Asia Pacific region and 10 per cent in the Americas.

When asked what their company’s biggest priority is today, 39.4 per cent of respondents cited targeting new client segments within existing markets, while 9.7 per cent said entering new geographical markets. EMEA-based insurers were the most eager to expand overseas.

John Ditchfield, director at Barchester Green Investment, said, “For a multitude of macro economic reasons, including demographic trends, over-indebtedness, aging populations, over-leveraging by banks and immature capital markets, investors should think about emerging markets. They are a longer-term investment, usually between 10 to 15 years, as opposed to two or three years for other investments.”