European insurers may not be able to generate sufficient future returns to meet guaranteed rates for all their policyholders, research by Standard Life Investments has warned.
The company carried out 56 interviews with senior insurance investment executives representing more than €2.4trn (£1.75trn), or around 30 per cent of pan-European insurance assets under management.
The survey found the expected future annual return, based on existing investment strategies, of 2.4 per cent is below the 2.7 per cent respondents need to meet future policyholder requirements based on current guarantee levels.
Many European insurers are considering undertaking significant strategic and tactical asset allocation changes to improve yield, with risk appetite appearing to be on the rise.
Stephen Acheson, executive director of Standard Life Investments, said: “European insurers’ business strategies and traditional business models are being fundamentally challenged due to the combination of the long-term low return environment, Solvency II and the ongoing need to deliver on promised guarantees.
“It is important to remember that Solvency II was conceived and developed in a very different economic environment.
“Since our survey completed, fundamental questions about the design and performance of the Solvency II balance sheet in the current low interest rate environment have begun to be raised.”
Standard Life Investments has 69 insurance clients investing balance sheet assets in more than 20 countries, representing AUM of £137bn.
The Solvency II directive puts in place a consistent solvency and capital adequacy framework for insurers across Europe and aims to provide greater protection to policyholders by reducing the probability of an insurance firm failure.