Hymans Robertson and Invesco have published a joint white paper looking at the growing interest from insurers in senior secured loans (SSLs).

The joint white paper finds that:

• Insurers are increasingly looking for ways to deliver attractive risk-adjusted returns following the introduction of Solvency II and with interest rates at historically low levels
• Between 2010 and 2016, some insurers have actively moved down the credit spectrum to boost risk-adjusted returns
• SSLs provide potentially higher risk-adjusted returns in comparison to high yield bonds and a potentially higher return on capital for insurers

Ross Evans, Head of Insurance Investment and ALM at Hymans Robertson commented:

“With the continuing challenges posed by the low yield environment and the new regulatory regime of Solvency II, Senior Secured Loans are worthy of further exploration by European insurers. The research highlights a number of features of the asset class which may appeal for investment portfolios backing participating business, surplus capital and property & casualty business."

Ed Collinge, Head of UK Insurance at Invesco added:

“The research suggests that this asset class offers attractive risk-adjusted and capital-adjusted returns, alongside record low volatility and is a potential source of diversification within an insurer’s portfolio. With the continuing challenges posed by the low yield environment and restrictions from Solvency II, it is likely insurers will increase allocations to this asset class.”