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HOME Changing demand dynamics: Opportunities for European insurers


CHANGING DEMAND DYNAMICS: OPPORTUNITIES FOR EUROPEAN INSURERS

As DB schemes approach the end game and continue to rebalance their portfolios,
we think insurance companies have an opportunity to capture value opportunities
across a range of asset classes.

Insurance Investor Promotional Contentposted on Monday, July 03, 2023

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@mandg Changing demand dynamics - opportunities for European insurers




THIS ARTICLE WAS PRODUCED BY M&G INVESTMENTS AS PART OF THEIR VALUED INDUSTRY
PARTNERSHIP WITH INSURANCE INVESTOR.

In our latest paper, we look at how a changing asset management landscape has
opened the doors to potential opportunities across the balance sheet for
insurance companies. The unprecedented levels of volatility in gilt markets
during September 2022 brought a fundamental shift in the UK defined benefit (DB)
pension scheme market, also altering asset class demand dynamics.

"European insurers are one of the few large institutional asset owners who may
be able to take advantage of these changes."

Despite the spike in gilt yields following the ‘mini budget’ causing significant
challenges for many pension schemes – especially those that used
‘liability-driven investment’ – the overall funding position for DB schemes is
now at a stronger level than before the crisis. The rise in gilt yields
generally led to a decrease in the present value of their liabilities as a
consequence of the higher discount rate. They are now in a position to arrange a
buyout, whereby their liabilities are transferred to an insurance company.

Schemes will typically look to reduce their exposure to illiquid assets and to
lock-in their current funding position by switching to lower-risk, more liquid
instruments. As DB schemes approach the end game and continue to rebalance
portfolios, we believe insurers have an opportunity to capture value across a
range of asset classes. In our latest insurance paper, we focus on the
opportunities we see in three key areas: asset backed securities, senior real
estate debt and multi-asset credit (MAC).

These asset classes have been affected, either in the short-term, or in the
longer-term as a result of likely changes in demand from pension schemes
following the fallout from September 2022, and may offer a range of benefits for
insurers such as liquidity and defensive qualities, diversification and
additional yield.

Insurance investing trends tend to be focused in areas such as expanding
non-core holdings, diversifying fixed income portfolios and out of cash. We
explore how insurers with the ability to take a long term investment view with
the right internal frameworks can position themselves for long term, compelling
and continued investment opportunities.


READ ON FOR MORE.






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