Insurance Companies in Emerging Markets

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper focuses on asset allocation decisions of life insurance companies in emerging markets. Mature market insurers allocate only a small fraction of their assets to emerging markets because of regulatory constraints, rating pressures, and currency risk. However, global insurers invest directly in emerging markets by setting up subsidiaries rather than through portfolio investment, and this trend is increasing. Local insurers largely remain captive investors of local instruments and provide stability to the domestic securities market. The regulatory regime and the liquidity and depth of local markets play an important role in asset allocation decisions of insurers. Insurance companies are increasingly adopting asset liability management and risk control measures. However, insufficiently developed local markets and regulatory interventions on the liabilities side often limit optimal asset allocation. JEL Classification Numbers: G22, G15, G18, G11, F37