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European Insurers To Increase Asset-Backed Exposure

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European insurance companies are expected to increase their investments in asset-backed securities this year, with insurers within the ING Group ready to double their exposure.

Erik-Jan van Bergen

European insurance companies are expected to increase their investments in asset-backed securities this year, with insurers within the ING Group ready to double their exposure. The move is part of a search for yield and comes on the back of the inclusion of ABS in regional indices. The ING insurance family, which includes Nationale-Nederlanden in The Netherlands and De Vaderlandsche in Belgium, may add close to E1 billion to its investments in triple-A ABS this year, according to Erik-Jan van Bergen, who heads up the European ABS team at ING Investment Management in The Hague. It makes investment decisions for the roughly 40 insurers within the group and manages a total of E14 billion in ABS, including some for external mandates. "We expect the insurance companies to raise the ABS allocation in their fixed-income mandates from 3% to 6%." Emmanuelle Nasse-Bridier, head of ABS at AXA Investment Managers, which has E5 billion in ABS and collateralized debt obligations, also sees insurance companies increasing their allocation to asset-backeds. She declined to quantify the increase but said "the limitation on investments in ABS is the size of the market and access to assets, not investor appetite."

Dirk Bergander, managing director and head of securitization and structured finance at Hypo Real Estate Bank in Dortmund, would not be surprised if German insurance companies doubled their allocations by the end of the year.

The interest in ABS is spurred by a couple of factors. Tight spreads in other credit markets are forcing insurers to look for yields in non-traditional securities. And, Lehman Brothers' inclusion of ABS in its European Aggregate benchmark at the beginning of the year, at 1%, has helped familiarize European investors with the asset class.

Van Bergen also predicted that ING IM will receive more pure ABS mandates in the coming year. "We only have a few pure ABS institutional mandates at the moment, out of over 300 in total, but we are already seeing increased interest from investors," he said. About E4 billion of ING IM's E14 billion in ABS is in external institutional mandates. "Even if ABS is only a small part of the benchmark, that helps to reinforce our marketing message that ABS is here to stay," he added.

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