Commercial Risk Europe: Insurers’ increasingly risky investments pose threat to stability, warns IMF

16 October 2017

The International Monetary Fund has warned that the insurance industry and institutional investors have increased their exposure to riskier investments to shore up profits, potentially posing a threat to economic stability.

Addressing a press conference on the launch of its Global Financial Stability Report, IMF financial counsellor Tobias Adrian named five potential threats to international financial stability. He said market risk is rising and “the search for yield may have gone too far”.

He warned that along with the four other watch areas, investment risk could put the global recovery in jeopardy.

According to a report in UK newspaper The Telegraph, one third of bonds held by US and European insurers are rated BBB or below, while in the US and Japan, insurers are extending the maturity of the bonds. In the UK, investors are trending to more liquid assets to boost returns, but which can prove difficult to sell quickly. The IMF report adds that US insurers are finding ways round the rules to generate returns. “Additional risk-taking has also been taking place in the US – for example, using unregulated subsidiaries, which do not face the same capital requirements as insurers,” it notes.

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