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Demand for diversification and environmental, social, and governance investing is growing
May 2019, London—Italy is becoming a more attractive market for foreign asset managers, but with the increase in appeal comes greater competition. To stand out, managers need to offer additional expertise, according to The Cerulli Edge―Europe Edition.
The fourth largest in Europe, the Italian insurance market had assets of €779 billion (US$875 billion) in 2017, accounting for an 7.9% share of the €9.9 trillion European insurance industry in that year. Cerulli Associates, a global research and consulting firm, forecasts that Italian insurance assets will reach €1.2 trillion by 2023.
Italian life insurers have a high allocation to fixed income (around 80%), with the bulk of these assets in local government bonds. The solvency ratio is high—typically above 200%—which means Italy’s insurers are not interested in Solvency II capital-efficient solutions.
“Although Italian insurers are keen to explore asset classes other than government debt, more esoteric alternative assets will be a step too far for many smaller and mid-sized institutions,” says Justina Deveikyte, associate director, European institutional research at Cerulli. “The diversification that is taking place is focused on private investments—in particular private debt and private infrastructure debt— as well as loans and real estate debt.”
Italian insurers are starting to pay more attention to environmental, social, and governance factors, but it is still in its early days. Only 20.0% of the asset managers in Italy that responded to a Cerulli survey believe that demand will grow rapidly, 53.3% foresee moderate growth, and 26.7% expect slow or no growth.
“When being creative with products and strategies, managers need to ensure that solutions are simple because insurers do not like complexity,” says Deveikyte.
She notes that, while addressable assets are increasing, it would take just a handful of larger managers offering a full package to scoop up a significant portion of these assets in segregated mandates or funds.
“Foreign unaffiliated managers with limited resources are better placed selling funds to Italian insurers rather than segregated mandates; doing so requires less work and there is less fee pressure. In addition, most large insurers will choose affiliated managers for mandates, where funds would be more appropriate if an allocation to a new asset class is relatively small and the product is more complex,” says Deveikyte.
• Fund assets under management (AUM) in Spain are forecast to rise in 2019, with market volatility, technology, and increased competition from new entrants and passives influencing the pace and direction of the growth, says Cerulli, adding that new regulation will both impose limitations and create fresh opportunities.
• With the value of Italian mutual fund and exchange-traded fund AUM having contracted by 6% year-on-year in 2018 to €955 billion, local and foreign asset managers are focusing on offering products and strategies that balance the revenue-generating needs and the risk-averse nature of the country’s investors. Examples include emerging market and high-yield bonds.
NOTES TO EDITORS:
These findings and more are from The Cerulli Edge―Europe Edition, 2Q 2019 issue.
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