20120621-奥纬咨询-The_€200_Billion_Opportunity_Why_Insurers_Should_Lend_More_15页_401kb

THE €200 BILLION OPPORTUNITY: WHY INSURERS SHOULD LEND MORE

Introduction: Insurers' Untapped Potential

• The European insurance industry faces challenges, including declining asset values and loss of market share in savings and investment.
• Insurers hold predictable, long-term liabilities (e.g., annuities) ideal for funding illiquid loans, offering a structural advantage they have not fully exploited.
• If insurers shift part of their funding towards long-term credit, European insurance market value could increase by €200 billion (50%).

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Capitalizing on Banks' Plight

• European banks face a €3 trillion funding gap due to regulatory constraints (e.g., NSFR) and maturity mismatch risks.
• Banks are reducing long-term lending, leaving a void in long-term financing for sectors like SMEs, social housing, and infrastructure.
• Insurers, with stable liabilities matching long-term loans, can fill this gap, offering borrowers better spreads than banks (e.g., 100 bps vs. banks' margins).

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Opportunities in Illiquid Assets

• Insurers can invest in illiquid assets like commercial mortgages, infrastructure loans, and asset-backed securities.
• Key advantages:
  • Predictable liabilities reduce liquidity risk.
  • Assets with limited pre-payment risk, high credit quality, and inflation-linked features are preferred.
• Estimated market opportunity in selected European countries (e.g., UK, France, Germany) exceeds the size of predictable liabilities.

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Challenges and Implementation

• Operational Gaps: Insurers need to develop capabilities for origination, risk management, and liquidity assessment.
• Regulatory Hurdles: Uncertainty around Solvency II, but illiquid investments still offer superior returns regardless of regulatory outcomes.
• Steps to Capture Value:
  • Transition investment portfolios towards illiquid assets.
  • Enhance credit risk and liquidity risk management.
  • Leverage Solvency II frameworks to offset higher capital requirements.

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Broader Impacts

• Economic benefits: Reduces maturity transformation risks, stabilizes long-term financing, and boosts capital markets.
• Social impact: Supports infrastructure, housing, and SMEs, ensuring sustainable economic growth.
• "No Regrets" Strategy: Investing in commercial mortgages consistently yields high returns across regulatory scenarios, making it a reliable path forward.

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This opportunity allows insurers to increase market capitalization by €200 billion while aligning with broader economic goals.