Solvency II provides greater freedom for insurers from an investment strategy perspective, but also promotes a greater focus on the implications of investment decisions on risk profile and capital requirements. While insurers’ investment profiles have changed somewhat since the introduction of Solvency II, there may be opportunities for many insurers to move towards optimisation of their investment strategies.
In the context of a low interest rate environment, insurers can struggle to find assets providing a sufficient yield while meeting capital and risk appetite criteria. Our research suggests that there can be assets which provide additional yield without significantly increasing capital requirements from an insurer's point of view. In fact, some alternative assets can help diversify risk profiles while generating yield pick-up.
We hope that our research provides helpful insights for insurers considering these issues as well as for European insurers considering the use of the matching adjustment, and for insurers looking to strike an optimal balance between the return on cash deposits and the associated capital requirements.