Global Invest Forum | Insurance Industry

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  • 10 mins 43 secs
Alexandre Mincier, Global Head of Insurance, Invesco


Global Invest Forum

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Joined now by alexandra is global head of insurance at invesco, and he's here with me at the global invest forum in paris, alexandra, thanks for joining us a lot of interest in recent years in liquid assets, alternative products, wire investors particularly insurance space so interested in them. But way, think about the insurance industry traditionally schultz invested in muslim toe bones so much the liabilities and a bit off equity, even smaller pieces off really state and private. That was the best strategy during a period where rates were going down, so there was a trend during the last forty years where rates decreasing constantly. In that context, it was the best strategy toe developed. Current wait have alive level, off interest rates and off fields, which sometimes is below the guarantees that have been sold to the policyholders during this period. I would say there are several elements who came in tow. The equation during the last ten years first is that i talked about secondly way had solvency regimes of the recent basis capital in most jurisdictions, including europe, us in asia as well, which shifted the way the shooters were looking at risks and much of their liabilities, and i would say something to the effect that in the same time we had a change in the banking regulations have you became penalizing for banks to invest in long term illiquid assets. So therefore, there was a much between the long term liabilities of the insurers and they liquidity off, which in addition, provided liquidity premium that was very useful in the context off heels decreasing. So i would say that there are also other elements which which came into the creation so of what the solvent solvent sea story. James i do made a favourable for some of the classes like infrastructure. That's for example, and in that in that case became even more favorable for insurers tto. Gett tto goingto into this class, so we've seen a trend. So in the last years for for insurance to move towards the really with us classes, capture that liquid premium and feed it to the new insurance regulations. Andi, i think thiss trend will continue as long as the fields they love. Even in the u s way c a bit off increase off interest rates, they are still below the historical levels can expect this way, expect this trend three liquidity toe to continue for the next thing. The next well, you mentioned liquid assets, liquid products. There's a lot out there which of the most attractive at the moment, i think there are two questions that investors should should answer before going into a liquid assets. First of all, what is the appetite ofthe liquidity in the portfolio ? So there are businesses like like life insurance, where by nature abilities are liquid, and there are other businesses in the u. S industries. The, for example, the unit link or property of charity where we need liquid wei need to stick with it. So i think the appetite for liquidity is different from business to business. So what is the liquid ? The appetite is the first question we need wants them. There are very few models in the current. Currently that can you cannot question more than classes ? Second question is what are the best asset classes to go into ? That's a difficult question, because as i said, it's not your story more than jesus across is the calibrating from the modeling quite a difficult, difficult exercise and most of the traditional asset allocation model cannot cope with it. Now in terms ofthe. What are the best asset classes ? Going toe ? I think there is no one answer to that question if we look back in the recent history. Two thousand eleven two thousand twelve. We could russian to infrastructure, the depth where we have spreads off about forty two, forty four hundred four hundred fifty basis points. But third class is the size of the crisis is much more than the the traditional classes were investors. We're going in the past. It is very difficult toe find appropriate size for this market. The rates compressed quite quickly when the money into the market. Then people moved toe senior secure really st, which looks the safest class of the time with a similar story, the press has compressed from four hundred two hundred. In that context, i think in the current market, which became more and more efficient on dh people get more and more used to it. The liquid asset classes. The liquidity is a relative term, so when market is sufficient a soon as an asset class provide a better return this profile off course, people will go there, and this all correct, very quickly. And the that's why i think in the current market is risky look att the portfolio from or holistic perspective defining what are the outcomes that we want to achieve in terms of inca meters off total return in terms of volatility of the piano contents of capital charges and try to define build a portfolio around this. This outcomes fuck from taking a the portfolio approach. He's been beneficial for from from many points of view first off, or we can design the portfolio that feeds what what we're expecting. We can manage the risk better. We can have better feast way because way can concentrate way can take the fees into account when he built the portfolios and we can go into us class is that may provide bliss this liquidity, but but they can be so they can be invested in a portfolio up approach, but being so i think from all this perspective it is much in my view. Currently weighted toe look att the liquid illiquid assets from a perspective other than from finding the best class to investing sort of the main risks associating with the liquid products that investors need to be aware off. I think in the first place we need to define what the liquid products means and what where they with the criminal come from so unless it is called liquid. If you cannot be transformed into cash, we thought the significant loss of value in a short period of time thiss liquidity premium from three components. First of all the complexity there there is a complexity associative toe, but the liquid products can be legal can be government's negotiation contract negotiations. Second is our transaction costs wait. I can't take the example of the real estate market where we need to deploy some money in order to get taxes toe the mark on something. It's interesting illiquidity off the product, meaning that cannot be easily trust for transforming all the suspects have to be have to be managed carefully when you go into any liquid products and that requires expertise. There is a wide range of felix felix with products. The market is very broad, and each one of these classes require require expertise. And i think us asset managers have to adapt to that new reality, and they need toe be able to deploy resources and the expertise in the classes there they're going in go. I think if i if i were to summarize this into into three points expertise, it is important for assad managers to be to be ableto, you have the right to put in place the right resources secondly, we need to make sure that there is a market is deep enough to get the access to the to the assets and to be able to deploy the the money that way have to invest. Sometimes in some markets, we've seen less than a hundred percent of the money being deployed something to take into account when we're going in the market. Also, the realization of the return through time is important because on some of the classes we have a jacob like private equity, meaning that returns come mostly or at the end of the the investment period and less at the beginning and servicing fees are very important because in some classes, the fees are quite quite significant due to the need off expertise in orderto talks class itself. So this's piece has to be taken into account when it comes to investing in in the portfolio from the portfolio constant construction of the stage.

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