IREBS ImmobilienakademieInternational Real Estate Business School Immobilienakademie GmbH
Prof. Dr. Tobias Just - IREBS
According to Professor Tobias Just, the head of the IREBS which is part of the University of Regensburg, “Our study analysed yield opportunities and risk assessment across the different asset classes for the entire European property market, with a view to portfolio optimisation for insurers.”
It makes sense for most insurance companies to take on a greater degree of exposure to real estate despite the introduction of the Solvency II regulations concerning equity capital, concludes a recent study jointly carried out by IREBS and private group Corestate Capital.
The study looked at property allocation among European insurers and found that yields are attractive and risk is relatively low for both direct and indirect real estate investment. The stable, long-term rental yield and value growth potential, in particular, make the asset class attractive, concludes the study.
The introduction of the Solvency II regulation was designed to improve investment risks. But the regulation, combined with the low interest rate environment, has changed investment strategies among insurers, which previously focused on buying government bonds. Even though high equity provisions are required for alternative assets such as property, investments in the sector are indispensable, the study says.
According to Professor Tobias Just, the head of the IREBS which is part of the University of Regensburg, “Our study analysed yield opportunities and risk assessment across the different asset classes for the entire European property market, with a view to portfolio optimisation for insurers.”
An efficient portfolio needs a property quota of over 10%, he said, while the current sector average ranges only between 4%-6% at the moment. In Germany, several insurers with very large capital bases have investment exposure to real estate of often as low as 0% and 2%, the study shows.
Corestate Capital's CEO Sascha Wilhelm commented, “Solvency II is distorting risks. Investments into property are assessed as too high-risk compared to other asset classes such as stocks or bonds. One reason for that is the base data used for Solvency II, which only looks at the UK market; another is the fact that the low correlation between property and other asset classes has not been sufficiently considered.”
