Where do you put your money? Individual and institutional investors alike have grappled with this question since the inception of the financial crisis.
A new Sigma report from Swiss Re notes many of the myriad challenges asset managers currently face precede the crisis.
“Trends in motion prior to the financial crisis are leading to regulatory changes that may affect insurers’ investment strategies,” the report states. “Developments such as the changes in accounting standards, increased regulatory and capital requirements, and a higher capital chares on some investments may encourage insurers to allocate more of their assets to government securities at a time when yields are extremely low and sovereign bonds are no longer fail-safe investments.”
Indeed, it is the risk that the global insurance industry exposes too much of its collective $22 trillion in assets to too little risk that worries Swiss Re.
“Over-investing in low-risk, low-return securities reduces insurers’ investment income. For U.S. insurers, a requirement to allocate half of assets to Treasury bills and half to Treasury bonds would have reduced returns by 1.5% a year from 1991-2008. A similar return reduction on U.S. $22 trillion of global insurance assets would cost the industry some $340 billion a year.”
Thus, for insurers one of the keys to emerging from the crisis may well be to acknowledge the lessons of the crisis while not allowing them to distort sound investment decisions.
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Corrected November 24, 2010 at 9:59AM: yes