The imminent Solvency II Directive will require Europe-based insurance companies to maintain more liquid assets by early 2016; this in turn has impacted the amount the investor type is able to commit to the private equity asset class, which is highly illiquid in nature.
The 2014 Preqin Global Private Equity Report shows that in June 2008, insurance companies accounted for 13% of aggregate capital committed to the asset class, but this declined to 10% by June 2013. However, while the proportion accounted for by the investor type dropped, the amount of capital committed by insurance companies to the private equity asset class has actually increased by 22%. In June 2008, the aggregate capital invested in private equity was estimated to be $1.1tn, and in June 2013 it was $1.76tn. As such, the amount of capital insurance companies have committed has risen, but perhaps not as rapidly as other investor types within the private equity space.
Preqin’s data shows that insurance companies are still largely attracted to the private equity industry and plan to invest more capital in the asset class. In December 2013, Preqin surveyed over 100 institutional investors globally for our bi-annual Investor Outlook report. Results showed that 100% of all European insurance company respondents cited regulation as being a key issue facing investors seeking to operate an effective private equity program in 2014. However, 71% of these have not reduced and have no immediate plans to reduce their allocation to the private equity asset class.
At present, 27% of European insurance companies tracked by Preqin’s Investor Intelligence online service are actively looking to commit to new private equity funds over the next 12 months. On average they will each commit €410mn to the asset class over the next 12 months. Malakoff Médéric is an example of a Europe-based insurance company which is currently active in the private equity space, having recently committed to the France-focused venture capital Services Innovants Santé et Autonomie Fund.
Although the impending Solvency II regulation has presented a challenge for European insurance companies investing in private equity, it is clear that they still have an appetite for the asset class and these impending regulations do not look set to have a drastic effect on their investment activity.