Find
out more about our investment capabilities
Find out more about the full scope of our solutions offering
Search for funds, documents, and notifications
Search for funds within each asset class
Find funds run by each of our affiliated investment managers
Gain our perspectives and investment thinking across each asset class
Get deep insight and expert views on the forces shaping financial markets
Find out more about who we are and how we might be able to help
Discover the latest insights from the center for investor insight
The coming year is likely to see significant volatility in some asset classes. For insurers willing to take a sophisticated approach to the Solvency Capital Requirements, this will be an opportunity to secure yield and boost returns.
Head of Insurance Multi Assets
Ostrum Asset Management
Insurance Solutions Expert
Ostrum Asset Management
Insurers begin 2025 by facing several significant unknowns. Navigating this environment will require the ability to react nimbly and to turn market volatility into an opportunity.
The uncertainties ahead include the arrival of Donald Trump as the 47th US President. Trump has made clear that tariffs will be a pillar of his trade policy, but the precise nature of those tariffs is unclear. While China is the focus of his concern, there will be impacts across global economies, including for European companies with exports to the US.
Europe, meanwhile, is facing its own challenges with France facing political instability and Germany holding elections in the first quarter of the year. China itself is preparing a stimulus package to spark its domestic economy. The exact nature and scale of that stimulus is also as yet unknown but given the sheer scale of the Chinese economy the effects could be significant.
For insurers, the question of asset allocations in this uncertain and potentially volatile environment is paramount.
Given the importance of regulation, many insurers and their advisers may be tempted to make Solvency Capital Requirement (SCR) their primary concern and attempt from the outset to optimise their SCR. Ostrum AM, an affiliate of the Natixis group, believe it’s only the first step.
“Making SCR optimisation the principal aim of an allocation strategy tends in only one direction – to reduce SCR. This in turn will tend to reduce returns, which is contrary to the fundamental objective of managing an investment portfolio in any business” explains Rémi Lamaud, Insurance solutions expert at Ostrum AM.
SCR is of course a core constraint on allocations, but it should not be the principal guiding factor.
“Each insurance client who comes to Ostrum AM has an established SCR with which they are broadly comfortable. But the most effective strategy is not to attempt to optimise (typically reduce) this SCR, but to use it as a parameter and then aim to optimise returns. In other words, analysing SCR consumption is only step one in Ostrum AM’s process to build allocations for their insurance clients,” says Rémi Lamaud.
There is not one allocation that will suit every insurer, but it is important to consider whether reducing SCR for its own sake is desirable if it leads to reduced returns. “The vital question we ask is whether improved returns can be achieved within the SCR parameters suitable for that insurer” Audoli specifies.
Ostrum AM monitors all assets classes, from sovereign bonds through investment grade and high yield bonds to equities and illiquid assets through a Return / SCR perspective. This grid is then submitted to simulations according to Ostrum AM’s views to assess how Return and SCR could change. By aligning this with an insurer’s SCR parameters, the team creates a global map of opportunities, identifying where allocations can be adjusted, thus remaining within the SCR range appropriate for the insurer while also ensuring optimised returns.
Source: Ostrum AM, as of December 2024
The outcome is tailored to each insurer, their SCR starting point and their accounting methodology. The exact allocation will thus differ between clients.
While the details will vary, Ostrum AM sees several broad opportunities in 2025 that should be considered as part of an allocation strategy.
The most significant factor in fixed income over the coming 12 months will naturally be the path of interest rates. “By the end of 2025, we expect the European Central Bank deposit rate to have dropped to 2.25% and the US Federal Reserve rate to be cut to 3.5%. This decline in rates will make 2025 a good period in which to deploy cash into longer term investment,” anticipates Xavier-André Audoli, Head of Insurance Multi Assets at Ostrum AM.
But within this general trend insurers may face significant volatility on bond, notably in Europe and particularly in French sovereign debt. There may also be opportunities in peripheral European sovereign debt. Given the equal status of all EU member state debt under SCR, this is a market in which the active pursuit of yield comes at no spread cost in terms of capital requirements.
“In corporate investment grade debt, we expect 2025 to see little change, but we do expect to see a rise in spreads on high yield but not enough to offset the carry effect,” adds Audoli.
Considering the expected volatility in the fixed income space, market timing will be crucial to improve the book yield while optimising the SCR and accelerate the accretion of the yield of the portfolio.
“Finally, we expect to see an increase, of less than 10%, in total return (including dividends) from European equities and sees no reasons for concern over equity valuations. The dividend season in Europe centres on Q2 and thus market timing and market volatility will be a factor. Potential Drawdowns in equity in early 2025 should be an opportunity to buy and secure potentially attractive levels from upcoming dividends,” explains Lamaud.
According to Ostrum AM’s team, the environment is likely to change in the second half of the year and there should be opportunities to adjust allocations between US and European equities. There is likely to be less European uncertainty if potential political upheavals in France and Germany have been resolved. At the same time there will be much greater clarity on China’s stimulus measures and the practical reality of the Trump presidency.
Optimising returns in 2025 will involve grasping the opportunities that volatility creates and securing superior yield in both fixed income and in equities. In this environment, more than ever focusing on simply optimising SCR may not be the most effective strategy.
The Ostrum AM approach of mapping yield potential against capital requirements aims instead to optimise performance within the constraints of SCR. “It may sound like a small distinction, but it is one we believe will be the most effective in the volatile months ahead and one that could make a significant difference to returns” concludes Audoli.
Published in January 2024
Additional notes
This material has been provided for information purposes only to investment service providers or other Professional Clients, Qualified or Institutional Investors and, when required by local regulation, only at their written request. This material must not be used with Retail Investors.
In the E.U.: Provided by Natixis Investment Managers International or one of its BRANCH offices listed below. Natixis Investment Managers International is a portfolio management company authorized by the Autorité des Marchés Financiers (French Financial Markets Authority - AMF) under no. GP 90-009, and a simplified joint-stock company (société par actions simplifiée - SAS) registered in the Paris Trade and Companies Register under no. 329 450 738, Registered office: 43 avenue Pierre Mendès France, 75013 Paris. Germany: Natixis Investment Managers International, Zweigniederlassung Deutschland (Registration number: HRB 129507). Registered office: Senckenberganlage 21, 60325 Frankfurt am Main. Italy: Natixis Investment Managers International Succursale Italiana (Registration number: MI-2637562). Registered office: Via Adalberto Catena, 4, 20121 Milan, Italy. Netherlands: Natixis Investment Managers International, Dutch BRANCH (Registration number: 000050438298), Registered office: Stadsplateau 7, 3521AZ Utrecht, the Netherlands. Spain: Natixis Investment Managers International S.A., Sucursal en España (Registration number: NIF W0232616C), Registered office: Serrano n°90, 6th Floor, 28006 Madrid, Spain. Luxembourg: Natixis Investment Managers International, Luxembourg BRANCH (Registration number: B283713), Registered office: 2, rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. Belgium: Natixis Investment Managers International, Belgian BRANCH (Registration number: 1006.931.462), Gare Maritime, Rue Picard 7, Bte 100, 1000 Bruxelles, Belgium.
In Switzerland: Provided for information purposes only by Natixis Investment Managers, Switzerland Sàrl (Registration number: CHE-114.271.882), Rue du Vieux Collège 10, 1204 Geneva, Switzerland or its representative office in Zurich, Schweizergasse 6, 8001 Zürich.
In the British Isles: Provided by Natixis Investment Managers UK Limited which is authorised and regulated by the UK Financial Conduct Authority (FCA firm reference no. 190258) - registered office: Natixis Investment Managers UK Limited, Level 4, Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA. When permitted, the distribution of this material is intended to be made to persons as described as follows: in the United Kingdom: this material is intended to be communicated to and/or directed at investment professionals and professional investors only; in Ireland: this material is intended to be communicated to and/or directed at professional investors only; in Guernsey: this material is intended to be communicated to and/or directed at only financial services providers which hold a license from the Guernsey Financial Services Commission; in Jersey: this material is intended to be communicated to and/or directed at professional investors only; in the Isle of Man: this material is intended to be communicated to and/or directed at only financial services providers which hold a license from the Isle of Man Financial Services Authority or insurers authorised under section 8 of the Insurance Act 2008.
In the DIFC: Provided in and from the DIFC financial district by Natixis Investment Managers Middle East (DIFC BRANCH) which is regulated by the DFSA. Related financial products or services are only available to persons who have sufficient financial experience and understanding to participate in financial markets within the DIFC, and qualify as Professional Clients or Market Counterparties as defined by the DFSA. No other Person should act upon this material. Registered office: Unit L10-02, Level 10 ,ICD Brookfield Place, DIFC, PO Box 506752, Dubai, United Arab Emirates
In Japan: Provided by Natixis Investment Managers Japan Co., Ltd. Registration No.: Director-General of the Kanto Local Financial Bureau (kinsho) No.425. Content of Business: The Company conducts investment management business, investment advisory and agency business and Type II Financial Instruments Business as a Financial Instruments Business Operator.
In Taiwan: Provided by Natixis Investment Managers Securities Investment Consulting (Taipei) Co., Ltd., a Securities Investment Consulting Enterprise regulated by the Financial Supervisory Commission of the R.O.C. Registered address: 34F., No. 68, Sec. 5, Zhongxiao East Road, Xinyi Dist., Taipei City 11065, Taiwan (R.O.C.), license number 2020 FSC SICE No. 025, Tel. +886 2 8789 2788.
In Singapore: Provided by Natixis Investment Managers Singapore Limited (NIM Singapore) having office at 5 Shenton Way, #22-05/06, UIC Building, Singapore 068808 (Company Registration No. 199801044D) to distributors and qualified investors for information purpose only. NIM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets Services Licence to conduct fund management activities and is an exempt financial adviser. Mirova Division (Business Name Registration No.: 53431077W) and Ostrum Division (Business Name Registration No.: 53463468X) are part of NIM Singapore and are not separate legal entities. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
In Hong Kong: Provided by Natixis Investment Managers Hong Kong Limited to professional investors for information purpose only.
In Australia: Provided by Natixis Investment Managers Australia Pty Limited (ABN 60 088 786 289) (AFSL No. 246830) and is intended for the general information of financial advisers and wholesale clients only.
In New Zealand: This document is intended for the general information of New Zealand wholesale investors only and does not constitute financial advice. This is not a regulated offer for the purposes of the Financial Markets Conduct Act 2013 (FMCA) and is only available to New Zealand investors who have certified that they meet the requirements in the FMCA for wholesale investors. Natixis Investment Managers Australia Pty Limited is not a registered financial service provider in New Zealand.
In Korea: Provided by Natixis Investment Managers Korea Limited (Registered with Financial Services Commission for General Private Collective Investment Business) to distributors and qualified investors for information purpose only.
In Colombia: Provided by Natixis Investment Managers International Oficina de Representación (Colombia) to professional clients for informational purposes only as permitted under Decree 2555 of 2010. Any products, services or investments referred to herein are rendered exclusively outside of Colombia. This material does not constitute a public offering in Colombia and is addressed to less than 100 specifically identified investors.
In Latin America: Provided by Natixis Investment Managers International.
In Chile: Esta oferta privada se inicia el día de la fecha de la presente comunicación. La presente oferta se acoge a la Norma de Carácter General N° 336 de la Superintendencia de Valores y Seguros de Chile. La presente oferta versa sobre valores no inscritos en el Registro de Valores o en el Registro de Valores Extranjeros que lleva la Superintendencia de Valores y Seguros, por lo que los valores sobre los cuales ésta versa, no están sujetos a su fiscalización. Que por tratarse de valores no inscritos, no existe la obligación por parte del emisor de entregar en Chile información pública respecto de estos valores. Estos valores no podrán ser objeto de oferta pública mientras no sean inscritos en el Registro de Valores correspondiente.
In Mexico: Provided by Natixis IM Mexico, S. de R.L. de C.V., which is not a regulated financial entity, securities intermediary, or an investment manager in terms of the Mexican Securities Market Law (Ley del Mercado de Valores) and is not registered with the Comisión Nacional Bancaria y de Valores (CNBV) or any other Mexican authority. Any products, services or investments referred to herein that require authorization or license are rendered exclusively outside of Mexico. While shares of certain ETFs may be listed in the Sistema Internacional de Cotizaciones (SIC), such listing does not represent a public offering of securities in Mexico, and therefore the accuracy of this information has not been confirmed by the CNBV. Natixis Investment Managers is an entity organized under the laws of France and is not authorized by or registered with the CNBV or any other Mexican authority. Any reference contained herein to “Investment Managers” is made to Natixis Investment Managers and/or any of its investment management subsidiaries, which are also not authorized by or registered with the CNBV or any other Mexican authority.
In Uruguay: Provided by Natixis IM Uruguay S.A. Office: San Lucar 1491, Montevideo, Uruguay, CP 11500. The sale or offer of any units of a fund qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627.
In Brazil: Provided to a specific identified investment professional for information purposes only by Natixis Investment Managers International. This communication cannot be distributed other than to the identified addressee. Further, this communication should not be construed as a public offer of any securities or any related financial instruments. Natixis Investment Managers International is a portfolio management company authorized by the Autorité des Marchés Financiers (French Financial Markets Authority - AMF) under no. GP 90-009, and a simplified joint-stock company (société par actions simplifiée - SAS) registered in the Paris Trade and Companies Register under no. 329 450 738. Registered office: 43 avenue Pierre Mendès France, 75013 Paris.
The above referenced entities are business development units of Natixis Investment Managers, the holding company of a diverse line-up of specialised investment management and distribution entities worldwide. The investment management subsidiaries of Natixis Investment Managers conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions.
Although Natixis Investment Managers believes the information provided in this material to be reliable, including that from third party sources, it does not guarantee the accuracy, adequacy, or completeness of such information.
The provision of this material and/or reference to specific securities, sectors, or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of any regulated financial activity. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the individual(s) as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change and cannot be construed as having any contractual value. There can be no assurance that developments will transpire as may be forecasted in this material. The analyses and opinions expressed by external third parties are independent and does not necessarily reflect those of Natixis Investment Managers. Any past performance information presented is not indicative of future performance.
This material may not be distributed, published, or reproduced, in whole or in part.
All amounts shown are expressed in USD unless otherwise indicated.
