"Equity and real estate account for a material portion of GCC insurers' total invested assets," says
Equities remain the key asset class for GCC insurers, accounting for over 40 per cent of total investments in 2013. Middle Eastern equities have historically provided volatile returns given the market's relatively small size and the recent turbulence in the global financial markets. Furthermore, the
Real estate is also a key investment class, accounting for over 20 per cent of total invested assets in 2013. The main risks of real-estate assets stem from their valuation and liquidity. Specifically, real-estate assets are often recorded in insurers' financial statements at market value, exposing the balance sheet to volatility. In addition, liquidity of real estate is frequently low, with a surplus of completed properties further limiting the ability to liquidate real-estate assets quickly at balance-sheet values.
"The current regulatory framework for GCC insurers does not fully reflect the risk posed by material investments in high-risk assets," adds Harshani Kotuwegedara. "However, regulatory frameworks are gradually evolving in many countries, including limitations on investment in high-risk assets."
Moody's expects that, over time, GCC insurers' investment strategies will shift towards higher allocations to lower-risk assets.
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