Vienna Insurance Group could increase its real estate allocation to 8%, despite incoming Solvency II rules.
Austria鈥檚 largest insurer continues to invest in real estate to balance lower returns from bonds.
CIO Martin Simhandl told IP Real Estate that there was 鈥渞oom for growing the real estate portfolio by up to 200 basis points鈥� from its existing 6% allocation.
VIG invests mostly in Austria and central and eastern Europe, where it is generating more than half of its 鈧�9.15bn premiums.
Simhandl said it was becoming 鈥渉arder to find 鈥榖oring鈥� objects at the right price鈥� in Austria and so the insurer was also looking at cities like Prague, which he said was 鈥渟till a good market鈥�.
VIG plans to hold the properties for a long period because 鈥渢hey are a good addition to our portfolio mirroring our cash-flow profile鈥�, Simhandl said. Simhandl explained he was looking for core objects like residential properties or 鈥渟imple office buildings鈥�.
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.
鈥淭he sooner a standardisation of such investments can be achieved to minimise such risks, the better they would become suitable for insurers,鈥� said Simhandl.
In principle, he added, infrastructure investments 鈥渨ould be good for insurers鈥� given their long-term nature, but he said the expertise needed was another obstacle.
Asked whether the EU initiative on creating (ELTIFs), could help solve the problem, Simhandl said: 鈥渢he discussion has only just begun鈥�.
He said many crucial questions 鈥� including standardised due diligence, who provides the capital under which conditions or who finances maintenance 鈥� still remain unanswered.
