Insurers in Asia and Europe are being guided by the shadow of local regulations, as well as investment logic, in their allocating to alternative strategies.
While their plans are often to boost exposure to non-traditional asset classes, the degree of such increases will often hinge on regulations, according to the inaugural edition of The Cerulli Edge – International Institutional Edition.
In Europe, punitive capital charges on insurers' alternative investments under Solvency II, taking effect from 2016, threaten to limit insurers growing their allocations to non-traditional classes.
In Asia, by contrast, Chinese insurers have used the liberalisation of their investment options since 2012 to boost exposures to non-mainstream investments.
"Insurers recognise the beneficial attributes of alternatives strategies–including loss limitation, illiquidity premiums, and inflation hedging. But for many in Europe, the strategies require too much capital and are too complex and expensive to consider," commented David Walker, European director of institutional research at Cerulli Associates. "In Asia headwinds for alternatives allocations are generally milder, and insurers in some countries embrace non-traditional classes."
Korean firms seek overseas real estate investment trusts and property, while some Chinese counterparts allocate more to alternatives than to equities, for example.
In both Asia and Europe, the need for investment expertise that insurers lack themselves is a key reason to outsource.
"In Asia, cost effectiveness and pressure to make better returns are among the ancillary drivers of insurers outsourcing asset management generally," says Yoon Ng, Cerulli's Asia research director.
