2021年非流動資産調査
より競争が高まり、洗練性が増した市場
はじめに
英国の生命保険業界では、非流動資産への関心が増え続けており、投資の範囲および量という意味での活動を生み出しています。同時に非流動資産は、健全性規制機構（Prudential Regulation Authority、PRA）が厳しくモニターしている主要分野であることは驚くことではなく、非流動資産に関する多くの期待が、近年発行された監督上の指針に関するステートメント（Supervisory Statements）1に記載されています。また、英国のソルベンシーIIレビューの一環として、PRAの2021年定量的影響度調査（Quantitative Impact Study、QIS）2でも非流動資産について言及しています。ミリマンでは最近、2021年非流動資産調査を実施しました。これは、非流動資産区分に大きく投資している保険会社が採用している市場慣行に関する業界全般の民間調査です。この調査では、特に非流動資産組成と信用格付に関する評価という２つの分野に主眼を置いています。
ミリマンの調査参加者は、英国の一括購入年金（bulk purchase annuity、BPA）市場においていずれも非常に積極的なプレーヤーであり、英国保険会社の非流動資産に関わる活動の大部分をカバーしています。調査では、この２つの分野の多くのサブトピックについて参加者のコンセンサスがあるかどうかについても踏み込んでいます。
調査の一環として、ミリマンでは各参加者に合わせたレポートを作成し、その結果について論じ、ミリマンの考察について共有する個別のミーティングを実施しました。
本稿の残りの部分では、2021年非流動資産調査から得られた主な考察についてまとめています。
Introduction
Across the life insurance industry in the UK, interest in illiquid assets continues to grow and generate actions in terms of an increased breadth and quantity of investment. At the same time, it is unsurprising to see that illiquid assets are a key area of activity being closely monitored by the Prudential Regulation Authority (PRA), where a number of expectations with reference to illiquid assets have been set out in the Supervisory Statements1 issued in recent years. Illiquid assets were also referenced by the PRA’s 2021 Quantitative Impact Study (QIS)2 as part of the UK’s review of Solvency II.
We recently conducted Milliman’s 2021 Illiquid Asset Survey. This was a private and industry-wide survey in respect of the market practice adopted by insurers investing materially in illiquid asset classes. The survey focused on two areas of particular interest — assessing illiquid asset origination and credit rating assessment.
With our survey participants all being very active players in the UK’s bulk purchase annuity (BPA) market, we were able to cover the majority of the activity in UK insurers’ illiquid asset investments. The survey also enabled us to explore whether there was any consensus from the participants on a number of key subtopics within those two topical areas.
As part of the survey, we developed a tailored report for each participant and conducted one-to-one sessions to discuss the results and share our key observations.
In the rest of this memo, we summarise a number of key observations from the 2021 Illiquid Asset Survey.
Key observations
Illiquid assets origination
- Asset types: Asset mixes varied considerably between participants. However, there was a relatively stable core group of asset types held by survey participants within the UK market. For example, equity release mortgages (ERMs), infrastructure debts and commercial real estate loans were most commonly held. Expected onboarding of new asset types within the next 12 months was limited, with such activity focused mainly around expansion into ground rents.
- Exposure: Most participants aimed to increase their exposures to illiquid assets up to 50% or more via higher target allocations on new business. This pointed towards higher typical illiquid asset backing ratios in future, thus increasing the overall exposure to illiquid assets. We believe this is a significant indicator of expected future growth in the market.
- Rationale: All participants cited the potential for higher risk-adjusted investment returns as their primary reason for investment in illiquid assets. Environmental, Social and Governance (ESG) considerations also ranked highly, and we would expect this trend to continue as ESG policies became more embedded and investors seek to differentiate themselves in this regard.
- Acquisition: Direct origination was the most common approach used to acquire illiquid assets. This result appeared consistent with the overall illiquid asset mix, with a high prevalence of ERMs for which the origination was exclusively in-house, either relying on full in-house end-to-end capabilities or in-house supported by specialist external services.
- Constraints: As most illiquid assets were classed as nonfinancial, it was expected that investment limits by sector were the most likely to bite. Almost by definition, liquidity risk appetite was commonly viewed as one of the top constraints by survey participants when considering investments in illiquid assets.
- Challenges: The top challenges noted had a strong regulatory theme, with Solvency II internal model approval, matching adjustment approval and Solvency Capital Requirement (SCR) capital treatment all ranking highly.
Credit rating assessments
- Scope and prevalence: The vast majority of illiquid assets (about 90% across the survey total) were internally rated by insurers themselves with little variation in this picture across asset types.
- Purpose: Responses confirmed the central role that credit ratings play in the management of illiquid asset portfolios, covering all purposes suggested by the survey from investment acceptance to capital assessment.
- Methodology: Ratings methodologies varied across the market, with surveyed firms commonly using External Credit Assessment Institution (ECAI)-based and/or bespoke approaches.
- Resources: Dedicated credit rating teams clearly involved significant resources. However, even where dedicated teams were not in place, at least seven people were typically involved in the credit rating process, according to the survey responses.
- Validation: Most firms took more than one approach to validate their internal ratings. This seemed consistent with the important role that credit ratings are seen to play. Benchmarking against similar issues rated publicly was the most popular approach to validation.
- Monitoring: Ratings were generally reviewed annually, with many firms also using event-based frameworks to trigger ad hoc reviews as needed. Firms noted that committing sufficient resources to the task of ongoing monitoring was a key challenge.
Conclusion
Insurers (and in particular insurers writing BPA business) are investing an increasing proportion of their balance sheets into illiquid assets. At the same time, the list of the types of illiquid assets which insurers are buying is actually relatively stable. Because ECAI ratings are often unavailable for such assets, credit quality assessments conducted internally have become increasingly important. Insurers are therefore investing significant resources into developing, validating, and monitoring internal credit quality assessments.
We look forward to running the Illiquid Asset Survey again in 2022 to explore other areas of the topic.
How Milliman can help
As the illiquid/alternative investment market becomes more and more competitive and widespread, insurers must continue to develop their skill sets in managing those types of assets on their balance sheets through better alignment across various frameworks related to origination and management. Examples of such frameworks are investment origination (and risk management) frameworks, liquidity risk management frameworks and credit research frameworks, as well as any overarching objectives in association with transitioning to net-zero investment portfolios.
Milliman consultants have extensive market experience in helping clients understand the appropriate treatment of different types of illiquid and unrated assets across various purposes. Together with our risk management experts on climate risk or complex risks in general, we are well placed to help our clients address a broad range of questions and challenges, for example:
- Setting up and independently reviewing credit quality assessment frameworks for different types of illiquid and unrated assets
- The potential treatment of novel assets within internal models and Standard Formula frameworks
- Benchmarking market practice
- Developing investment strategies and investment risk management frameworks involving illiquid assets and ESG considerations
- Independently reviewing market risk management frameworks, such as liquidity risk3
- Modelling illiquid assets using stochastic techniques, including producing real-world stochastic investment return scenarios and much more
To discuss this note or any related topics please contact your usual Milliman consultants.
1Such as Supervisory Statement 1/20 (Prudent Person Principle), Supervisory Statement 3/17 (Illiquid unrated assets) etc.
2Booth, C., Christy, N., Crowson, J. et al. (July 2021). The PRA QIS Exercise. Milliman Briefing Note. Retrieved 21 April 2022 from https://us.milliman.com/-/media/milliman/pdfs/2021-articles/7-29-21-the-pra-qis-exercise.ashx.
3Booth, C., Fulcher, P., Vosvenieks, F., & Ward, R. (June 2019). Liquidity Risk Management: An Area of Increased Focus for Insurers. Milliman White Paper. Retrieved 21 April 2022 from https://www.milliman.com/-/media/milliman/importedfiles/ektron/liquidity_risk_management_an_area_of_increased_focus_for_insurers.ashx