Vienna Insurance Group could increase its real estate allocation to 8%, despite incoming Solvency II rules.
Austria’s largest insurer continues to invest in real estate to balance lower returns from bonds.
CIO Martin Simhandl told IP Real Estate that there was “room for growing the real estate portfolio by up to 200 basis points” from its existing 6% allocation.
VIG invests mostly in Austria and central and eastern Europe, where it is generating more than half of its €9.15bn premiums.
Simhandl said it was becoming “harder to find ‘boring’ objects at the right price” in Austria and so the insurer was also looking at cities like Prague, which he said was “still a good market”.
VIG plans to hold the properties for a long period because “they are a good addition to our portfolio mirroring our cash-flow profile”, Simhandl said. Simhandl explained he was looking for core objects like residential properties or “simple office buildings”.
The insurance group is seeking approval for a partial internal model for its real estate holdings to avoid the 25% buffer required on property holdings under Solvency II.
Simhandl said VIG remained cautious on infrastructure investments due to political and regulatory risks.
“The sooner a standardisation of such investments can be achieved to minimise such risks, the better they would become suitable for insurers,” said Simhandl.
In principle, he added, infrastructure investments “would be good for insurers” given their long-term nature, but he said the expertise needed was another obstacle.
Asked whether the EU initiative on creating European Long-term Investment Funds (ELTIFs), could help solve the problem, Simhandl said: “the discussion has only just begun”.
He said many crucial questions – including standardised due diligence, who provides the capital under which conditions or who finances maintenance – still remain unanswered.
