The insurance sector invests one of every three euros in public debt
It is a known fact that insurance companies’ balance sheets are, in general, very conservative. The nature of the business requires this, since it must achieve an adequate match between the period and interest rate of liabilities assumed and the investment instruments backing them. Consequently, most of their investments are allocated to fixed income, both sovereign and private debt, with greater weight on the former. So states the recent report, “Global post-pandemic savings and insurance industry investments”, prepared by MAPFRE Economics, which analyzes the investment portfolios of insurance companies, in a selection of markets in the large global regions (Eurozone, United States, Japan, United Kingdom, Spain, Brazil, and Mexico).
In total, in 2020, investments of the insurance sectors of these countries reached 21.955 billion euros, a nearly 5% increase. In general, due to the drop in economies in 2020 as a result of the crisis caused by the Covid-19 pandemic, the proportion of investments with respect to the GDP has been increasing. For example, in the case of the United Kingdom, it has soared to a record 109.4%.
In the Eurozone, the volume of investment in the insurance industry rose to 8 trillion 479.9 billion in 2020, up 3.8%, and now represents 74.4% of the region's GDP. From 2010 to 2020, there has been a 4.7 percentage point increase in fixed income investments, against a 7.4 percentage point drop in the percentage of investments in variable income. The loss of appetite for variable income is due to the entry into force of the Solvency II (2016) regulatory regime, and the new capital risk weights associated with the different types of assets.
Among the developed markets considered for this report, the Spanish market presents the highest proportion of fixed income investments in its portfolio, and, at the same time, has a higher concentration of sovereign debt, representing 55.0% of the total investment portfolio, while the corporate fixed income was 18.7% of the total investments. “In Spain, it must be noted that the high percentage of investments in sovereign bonds, as well as the lower percentage of investments in variable income, compared to the Eurozone average,” emphasized MAPFRE Economic Research in the report.
The sector and its role in savings
The report also includes a preliminary analysis of global savings after the Covid-19 pandemic, which has affected the world economy during the last two years. MAPFRE Economics offers an overview of the main factors that have affected the volume of savings resources during the crisis produced by the pandemic, from the perspectives of both developed and emerging economies, and allows us to highlight the relevance of insurance sector as one of the main savings collectors and, consequently, medium- and long-term institutional investors.
The crisis produced by the Covid-19 pandemic was, first, a shock to the three relevant channels for transmission to savings, as noted by the team of economists. First, via levels of activity, income, and liquidity. Second, through the aversion to risk caused by the uncertainty. And third, via demographics, by means of the specific affect on the life expectancy of the population. “Add to this the crisis produced by the invasion of Ukraine, which aggravated the dynamics which were already being forged with the decline of the pandemic crisis, exacerbating the wounds caused by Covid-19,” it concludes.