29 April 2026

As we go to press, the market continues to discount both primary and secondary impacts of recent Persian Gulf tensions. President Trump’s decision to join Israel in an aerial campaign against Iran disrupted nearly a fifth of the world’s oil supply. The resulting stalemate has contributed to an elevated uncertainty around economic growth and inflation and thus the likely monetary policy pathway. This uncertainty reflects in higher government bond yields though credit spreads have shown resilience. To a degree, ongoing peace talks have partially calmed market volatility, though investors remain attentive to ongoing developments in the region. The effects are visible in consensus expectations around interest rates. In February, markets anticipated the Bank of England would cut rates twice. In the early stages of the Iran war, there was debate about whether three or four rate hikes might be a more appropriate policy path. At the time of writing, the market expects two rate hikes. While the speed and scale of these changes was unusual, it’s important to note that markets remained open and orderly throughout the period. For context, the VIX index—a measure of market volatility—rose from 17 to 27 in March 2026. In late March of last year, President Trump’s “Liberation Day” tariff announcement pushed the VIX from 17 to a peak of 52 just days later (April 2025).

Against this backdrop, we present the latest edition of our Insurance Edge publication. In this issue, we bring together observations on asset allocation across the industry, as well as timely pieces on risk mitigation accounting, a practical exploration of derivative-based tools available to life insurers and how they can be implemented consistently with the UK Matching Adjustment regime, and finally some observations around how insurers are adapting strategies to current trends in sustainable investing.

As we head into 2026, we find the European insurance industry on an improving footing. Across the industry, we see insurers adapting to shifting market opportunities and regulatory change. Following a rapid rise in interest rates (and a period of subdued activity), 2025 saw a resurgence in the life insurance space. Supported by bank issued term products reaching maturity, life insurers are offering products with improved yields to attract flows. This has supported volume growth in the space. Meanwhile, non-life insurers are enjoying a period of repricing. The industry continues to look ahead to the Solvency II review, which is due to take effect in January 2027. A key change here is a reduction in spread risk SCR for securitized exposures, which is leading some insurers to take a closer look at the space.

Around accounting this quarter, we address timely questions about rate risks and hedging, featuring a piece reviewing Risk Mitigation Accounting (RMA). RMA covers macro and portfolio hedging and was designed to address shortcomings in IFRS 9. This is particularly relevant for insurers managing duration gaps or basis risks between assets and liabilities. Wheatley and Sensen highlight that dynamic risk management is made more challenging by IFRS 9 and IAS 39’s emphasis on individual hedges or closed portfolios.

UK and European insurers have made progress in mitigating climate risks through active portfolio management. Three-quarters of insurers report increased conviction in addressing this issue. With European and UK insurers managing around EUR 13 trillion in assets, their strategies are crucial. This quarter, we share insights into two approaches: we examine “Real World Decarbonisation,” where investors engage directly with companies, and “Portfolio Decarbonisation,” where investors actively select and exclude higher emitters. These approaches offer different solutions: direct engagement aims for tangible impact, while active screening reduces the investor pool for high emitters, potentially raising their cost of capital.

Author: Giles Bedford, Senior Investment Specialist, EMEA Insurance