Bank of America evaluates private asset exposure in the European insurance sector

Investing.com – U.S. bank analysts recently reviewed the private asset exposure of European insurance companies amid recent stock price pressures, finding that actual risk levels appear lower than market concerns.

In recent weeks, European insurance stocks have declined, partly due to investor worries about asset quality and potential private credit exposure. High-profile bankruptcy cases, upcoming refinancing needs, and concerns over artificial intelligence displacement risks have heightened investor anxiety. Other factors affecting the sector include weakening property and casualty insurance pricing prospects and Middle East conflicts.

U.S. bank analysis shows that, on average, European insurance companies’ general accounts allocate 11% to private credit and equity. Including all private assets such as mortgages, loans, securitized products, private loans, private equity, and real estate, this ratio reaches 27%. However, analysts note that mortgage portfolios tend to maintain high quality, and direct real estate exposure is highly diversified.

Excluding mortgage and real estate holdings, private loan exposure is 7%, and private equity exposure is 4%.

The highest exposure is among UK life insurers, with private loans and equity accounting for 15% to 25%. Dutch life insurers appear more defensive, mainly focusing private assets on high-quality Dutch residential mortgages. Aegon, due to its focus on the U.S. market, shows higher exposure but maintains a more conservative portfolio than its U.S. peers.

Among large integrated insurers, AXA’s exposure is slightly higher than peers due to its cautious stance on securitized assets. Generali and Zurich are positioned better than the sector average. Property and casualty insurers typically show lower exposure due to shorter asset-liability durations, although Munich Re and Hannover Re are slightly above sector averages.

Analysis of private credit and equity holdings indicates that the software and IT sectors constitute a small portion of debt and equity holdings, while infrastructure and energy are the main investment areas. Government-backed projects account a significant share of holdings in the UK.

U.S. bank conducted stress tests assuming a 5% default rate on infrastructure debt and a 10% default rate on other private credit and equity, roughly double current levels. In this scenario, if shareholders bear all losses, the losses would amount to about 4% of the sector’s market value, though in practice, policyholder sharing mechanisms would apply.

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