Survey: Solvency II will hurt fundraising

Insurance companies will invest in fewer alternative asset managers due to Solvency II, according to a survey of institutional investors conducted by UBS Fund Services and ‘Big Four’ audit firm PwC.

Solvency II requires insurers to hold varying levels of capital based on the riskiness of an asset. For private fund holdings, insurers are currently required to set aside €39 for every €100 invested under a default risk model. The funds industry has long feared this will price many insurers out of allocating capital to private funds.

In the survey, 67 percent of European insurance companies said Solvency II will have a negative ramifications and 70 percent said they will be less willing to invest in alternative assets.

In order to keep up their commitment levels to alternative asset classes in the face of Solvency II some insurance companies are looking for more co-investment opportunities, said the survey. Doing this enables the insurer to hold less than the 39 percent risk weighting required for funds, while still maintaining exposure to the asset class.

However, this survey contradicts the findings of previous studies on the impact of Solvency II on private fund fundraising. According to a May survey from Goldman Sachs Asset Management 28 percent of 233 global insurers surveyed intend to increase their investment in private equity. Insurers also aim to increase allocations to infrastructure debt (29 percent) and real estate equity (26 percent).

Yet, anecdotally insurers have been easing off private funds over the past year. Aktia Life Insurance previously said that Solvency II was the sole reason why it will not make any more private equity investments. Another insurer, Groupama, sold Groupama Private Equity to fund of funds ACG Group last year, as part of an effort to sell assets not central to its insurance business.

Solvency II, which was originally scheduled to go live in January 2014, is expected to take effect from January 2016.