XL XL Fleet Corp

By Juliet Samuel 

Insurers are finding it hard to invest their growing cash, according to a study commissioned by BlackRock Inc.

Chances to earn good returns in equity and bond markets are so scarce that insurers would rather sit on their cash so they can seize more unusual investment opportunities that arise, according to senior executives interviewed in the study.

Almost half the 248 executives interviewed expect their cash balances to grow over the next year or two, including many who still have a strong appetite for risk. The executives work at insurers and reinsurers that manage a total of $6.5 trillion and were surveyed by the Economist Intelligence Unit, a research consultancy.

Mark McGavick, chief executive of insurer XL Group said his firm is holding cash "as we want the flexibility to be opportunistic."

Waves of quantitative easing in Europe, the U.S. and Japan have pushed up asset prices and lowered yields, making all assets expensive. That leaves insurers with few good moneymaking opportunities to invest what they collect from selling policies to customers.

As a result, many are turning to alternative assets with long-term yields that can match the insurers' liabilities, according to David Lomas, a managing director at BlackRock. For example, after demand from its clients for such assets, BlackRock raised a $4 billion fund to buy infrastructure debt, he said.

He added that so-called green bonds that enable insurers to invest in renewable energy generators are becoming more popular for similar reasons. The risks on such investments are also not correlated to bond and equity markets but to factors like weather, making them an appealing way to diversify, Mr. Lomas said.

Insurers are also finding it more difficult to deploy money in bond markets because there are fewer banks willing to buy and sell assets in general, though bonds in particular, according to the study. Under tougher regulations, banks have retreated from their previous role acting as warehouses for assets that investors might want to buy.

Almost half the executives surveyed said they would like to buy more high-quality bonds, but cannot find enough. As a result, the study found that 40% of insurers plan to make more use of derivatives to gain exposure to the assets they want to buy but can't.

Write to Juliet Samuel at juliet.samuel@wsj.com

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(END) Dow Jones Newswires

October 25, 2015 20:11 ET (00:11 GMT)

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