Insurance companies in the European Union: General criteria affecting investment policies

Abstract

Investments of insurance companies relate to assets that guarantee the insured the payment of benefits (liabilities assumed), so they are conditioned by the duration of contracts, the amount of the sums insured, and the level of technical reserves required. An entity shall preserve the value of the investment in time for benefits obligations to policyholders and maintain the solvency margin and capital to protect shareholder or participant/beneficiary. Some insurance investment policies are based on the consideration of risk and return on assets and have incorporated the outcome measures of investment expenses and cost of capital. This article provides an overview of the evolving investment strategies of insurers and identifies the opportunities and constraints they may face with respect to long-term investment activity. This research employs a qualitative method with a convenience sampling approach. The sample of this study was the portfolios of several insurance companies in the European Union (EU). The results showed that two types of general criteria when selecting investment assets are observed, at least theoretically: the ownership structure of the entities and the types of products that are managed (life and non-life). According to the results of this study, most of the investments correspond to the life insurance segment, where contractual obligations are long-term and the insured risk is less volatile, which are invested mainly in fixed income. In contrast, non-life entities have a greater preference to invest in equity and real income when compared to the previous. The relevance of this study is based on the repercussions in the financial markets, as insurers as the main institutional investor.