Due to the incoming Solvency II legislation, European insurance companies are facing growing pressure to increase the liquidity of their investment portfolios. At present, Preqin’s Investor Intelligence tracks 110 European insurance companies that are actively investing in the private equity asset class, of which 46 are actively looking to make new commitments to the asset class over the next 12 months. These investors are each looking to commit to an average of three or four new funds, representing average capital commitment of between $80mn and $120mn each over the course of the 12 months.
Though these investors are looking to commit a sizeable amount of capital to the asset class over the next year, it must be noted that a significant proportion (58%) are not known to be looking make new commitments in the next 12 months, with some looking to reduce their exposure to private equity as a direct result of the pending legislation. It has recently been announced that Uniqa Alternative Investments, a subsidiary of Austrian insurance company, Uniqa Group, that manages the group’s investments in private equity, is looking to sell a $665mn portfolio of private equity interests on the secondary market, ahead of the Solvency II legislation. On a global scale, insurance companies now represent a significantly smaller proportion of the private equity universe than they did five years ago. In June 2008, it was estimated that insurance companies represented 13% ($140bn) of capital invested in the private equity asset class; however, as of September 2012, this had fallen to 8% ($134bn).
It has been suggested that Solvency II could lead to a significant drop in the number of insurance companies that view private equity as a profitable investment option. On-going uncertainty surrounding the implementation date of the legislation has not made the task of finalising current investment strategies any easier for those affected by it, and this may explain why there has been a hesitance on the part of investors to commit capital to the asset class over the next 12 months. It is likely that there will at the very least be a further reduction in the amount of capital committed to the asset class by this investor group, as other investment opportunities become comparatively more attractive.