Low-Rate Blues

The Insurance Casino

Monaco, Monte Carlo, The Casino at Dusk
Insurance executives gathered this week in Monte Carlo, home of Europe's grandest casinos.
  • Why it matters

    Why it matters

    Large insurance companies have long invested their assets in conservative investments such as bonds. But as the economic climate changes, they’re being forced to turn to riskier investments.

  • Facts

    Facts

    • The PWC consulting firm estimates that by 2020 large insurers will be managing about $35 trillion in assets.
    • The real estate division of German insurance giant Allianz recently acquired a €400 million stake in a New York office development.
    • A group of investors that included reinsurer Munich Re bought Germany’s largest highway service area chain for €3.5 billion last year.
  • Audio

    Audio

  • Pdf

Nikolaus von Bomhard isn’t exactly known as a hothead. But whenever the conversation turns to the zero interest-rate policy of the European Central Bank and its president, Mario Draghi, the chief executive of Munich Re, the world’s largest reinsurer, loses his composure.

The 60-year-old recently said he is “bewildered and appalled” by Mr. Draghi’s low interest-rate policy, which has put many insurers across Europe under threat of collapse over the past year and led to warnings from regulators and the International Monetary Fund.

It’s not just the average household with a savings account that faces problems investing their money as a result of the ECB policy. The current interest-rate environment is forcing large insurance giants such as Munich Re them to search for new ways of investing the premiums they gather from customers.

It’s being dubbed “the great flight.” According to an analysis by PWC, a consulting firm, by 2020 large insurers will be managing assets worth about $35 trillion, or €31 trillion. That’s money they have traditionally invested conservatively, in things like bonds. But such “safe” assets no longer bring them enough bang for their buck.

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