Tighter spreads prompt insurers to rethink liquidity premium
The costs that go with originating and holding illiquid assets are turning out to be greater than first thought. Are insurers getting paid enough to make the risks and effort worthwhile?
The ability to invest over the long term should be a clear source of value for insurers. Their annuity books and other long-term liabilities allow them to consider assets that are less attractive to most other investors because of their illiquidity, and for which insurers would naturally expect a premium. Furthermore, in the UK in particular, firms can benefit directly from a buy-and-maintain strategy through the Solvency II matching adjustment. At the same time, banks, which previously
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