Summary
Discover an innovative case study on how a European insurer utilized fund structures to meet banks' liquidity needs, enhancing returns under Solvency II constraints and ensuring profitability.
Key Points
Insurance companies are generally able to invest cash at long tenors and face the challenge of investing it in a way that maximizes their return in a capital constrained framework such as the one defined by the Solvency II directive in Europe while maintaining profitability in a volatile financial market.
Banks are subject to both long and short-term liquidity requirements to ensure their financial stability.
Insurers can leverage aligned interests with banks to unlock a premium by providing them stable financing.
This case study looks at a European insurance company that implemented an innovative solution, leveraging on the long-term nature of its investments and smart financing strategies through “fund” structure to maximize returns while complying with evolving regulatory and ESG guidelines.
Key considerations when implementing this type of innovative solution:
- Expertise in financing operations
- Access to top tier counterparties
- Being supported by an independent fiduciary manager
- Favor the “fund” structure, which allows to access additional premium and enhanced security
The business model and the regulatory framework of insurance companies compel them to adopt long-term investment strategies and to maintain profitability amidst a volatile environment. Simultaneously, regulatory authorities impose long and short-term liquidity requirements on banks to ensure their stability and their ability to withstand financial stress.
In this article, we explore through a case study how the implementation of an innovative solution via a fund structure could enable insurers to unlock the premium stemming from the aligned interests between insurers and banks.
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