Last Updated on Thursday, 2 September, 2021 at 11:06 am by Andre Camilleri
Within the financial industry, insurers are constantly faced with the complicated task of finding viable assets which generate returns in an increasingly complex environment. Since 2014, the price of money in the Eurozone has been at near zero levels, which in turn has directly impacted the accounts of financial institutions, including insurers.
In fact, recent reports prepared by MAPFRE Economics indicate that large insurance groups, recognised as some of the main institutional investors in public debt at a global level, invest more than 75% of their balance sheets in high quality debt, both sovereign and corporate. In this context, it is very difficult to maintain investment returns while aligning the duration of assets and liabilities, given that there are still some long-standing portfolios with high guaranteed rates. It is for this reason that MAPFRE, much like many other companies in the insurance sector, is immersed in the search of alternative, more profitable assets. However, MAPFRE retains a cautious position with regards to such investments.
Real estate assets: MAPFRE made its debut in the real estate industry in 2018 by entering a deal with a 50% stake and a total of €100 million pledged. Through this alliance, which formed to invest up to €300 million, has acquired high-quality buildings in locations such as Luxembourg, London, and Hamburg. In mid-2019, the Group reached an agreement with Swiss Life for the creation of an investment vehicle in the real estate market, which resulted in expanding its investment to prime offices in Paris as well. This alliance was further enhanced by a Joint Venture last April, with an initial volume of assets valued at €400 million.
Infrastructures: MAPFRE and Abante, as part of their strategic alliance initiated two years ago, launched an infrastructure fund of up to €300 million. To this end, MAPFRE pledged an initial capital contribution of €50 million in line with sustainability, social and governance (ESG) criteria, although this figure has now been increased to €100 million. This fund offers an opportunity for investors to access an asset class that allows portfolios to be diversified in a low rate environment.
Private equity: Together with Abante and Altamar, MAPFRE launched a fund in which the insurance group committed more than €200 million in assets. The former brings together the private equity investments already made by the group’s entities, as well as current and future investments, and has a conservative stance. This type of investment meets the needs of insurance companies and other institutional investors who, by the nature of their business, have to invest in very long-term assets. Moreover, unlike a traditional private equity fund, whose average life is around ten or twelve years, this instrument has an unlimited term.
Sustainable investments: MAPFRE reached an agreement with Iberdrola to jointly invest in renewable energies in Spain. This project, in which MAPFRE will have an 80% stake, represents the creation of a pioneering co-investment vehicle between an energy company and an insurance company. The Joint Venture will leverage up to 230 MW of green projects —both wind and photovoltaic— from the energy company’s portfolio of assets. This alliance provides third party stakeholders with the opportunity to co-invest in clean energy, in which around €800 million will be jointly invested.
All these investments bring MAPFRE’s total commitment to alternative assets to more than €850 million. The Group’s commitment to these types of assets is a major factor to be borne in mind and, despite its smaller weight in the product portfolio, the promotion of new projects will allow MAPFRE to have a greater exposure to this area and will allow the company to explore new investment opportunities in the future.