Insurers stable investment approach is a global signpost and this draws from the market watershed, premiums which is collected round the clock as risks streams in for cover, there is a continual flow of new premiums, even during periods of economic volatility.
These premiums Global Federation of Insurance Associations reports, are turned into assets and insurers must hold a large portfolio of assets to back policyholders liabilities.
“Investing is therefore a fundamental aspect of the insurance business model. As a result, the insurance industry is one of the largest institutional investors globally, with US$40tr of assets under management,” GFIA stated.
The Global Federation noted that the continual flow of new premiums, even during periods of market volatility, allow insurers to invest in a wide range of assets, including long-term investments such as property, infrastructure and private equity and debt.
According to the report the benefits of insurers investments are like ubiquitous dots in the economy and this make the sector stand out as a major investor of long-term life funds and short-term general business funds. Therefore, “insurers constant ability and need to invest make them important providers of stable funding for governments, businesses and, to a lesser extent, households. Insurers’ long-term investment horizon means they can provide policyholders with a range of investment options and products.”
Insurers are able to this the report highlighted through investment strategies, these business models and core asset-liability management give them a great deal of flexibility, allowing them to decide whether to sell assets, when to sell assets and which assets to sell. “Insurers are therefore generally not exposed to the risks of losses from short-term market volatility and are instead exposed to the lower and more manageable risks of long-term underperformance as well as to default risks.”
Giving a global picture of the investment scene, GFIA said. “This means insurers can benefit from illiquidity premiums and it also means their investment behaviour can be counter-cyclical. Insurers can avoid selling during a market crash, can even choose to buy assets that are temporary undervalued during a downturn and can sell assets that are temporary overvalued during a boom.”
