News & Announcements

Among the innovations introduced by the international insurance company is the option of suspending premium payments while keeping the insurance coverage in place, to cope with unforeseen changes.

Medium- and long-term planning of one’s asset management is crucial in deciding whether and how to invest and how to integrate investment and insurance protection. On the other hand, however, uncertainties are unavoidable, because life can involve unpredictable events or certain situations that simply change, disrupting plans and changing priorities.

To support customers throughout their life cycle, international insurance company NOVIS has always introduced innovations to make insurance solutions flexible so that they can evolve in parallel with people’s needs.

Innovations in Insurance: suspended premium, warranty unaffected

NOVIS’s approach has always been characterised by the desire to act as a single point of contact for customers, both for insurance protection and for the option of investing in widely diversified internal funds capable of seizing emerging opportunities.

This has led to the development of solutions with a medium- to long-term timeframe, which allows investment risks to be mitigated and provides broad-based protection.

On the other hand, life situations can change over the years, altering the initial conditions under which the choice to build one’s investment portfolio was made.

One of the most common situations is the variability of people’s employment status, especially in the face of contemporary labour market dynamics. These are characterised by profound changes triggered by COVID and demographic dynamics. Compared to the past, when career paths were stable and predictable, today the world of work is distinguished by flexibility, which implies opportunities for change to pursue brighter careers, but also relatively long periods of lay-offs.

The fear of not being able to meet the commitment of an investment on a consistent basis may discourage one from starting the investment, leading to missed opportunities in terms of asset protection and growth. Therefore, NOVIS has designed a solution to respond to a widespread fear that may lead to irrational choices, by introducing premium suspension into its products.

This is a mechanism whereby the policyholder who has chosen a recurring premium plan may request to suspend the payment of the scheduled premium, starting as early as the first month of the contract^[1]. This choice, which may be dictated, for example, by a sudden change in one's employment situation, does not cause the validity of the contract to lapse, so the insurance covers remain in place for the accumulated capital share.
If, for example, the policyholder dies during the suspension period, the company will pay the beneficiaries the sum insured, equal to the value of the contract at the time of death, and the sum insured in the event of death.

At any time, the policyholder may resume premium payments, choose to supplement them with additional premiums or exercise the surrender option.

Flexibility for every need

The option of suspending the premium, provided for in most NOVIS solutions, is an option that introduces flexibility into insurance products, making investing more accessible to anyone who wants to build up assets over time, realise their plans and protect their loved ones.

Thus NOVIS confirms its willingness to stand by people as a single point of contact for both insurance and finance.

Depending on one’s profile, one can choose the most suitable NOVIS solution to meet capital preservation or growth needs or to invest sustainably, through internal funds that apply maximum geographical, sectoral, and currency diversification.

In addition to investment opportunities, an option such as premium suspension allows one to adapt one’s portfolio to changing life situations, reconciling the need for security with the possibility of seizing opportunities in the financial markets.

^[1] Technically, the recurring premium instalment due shall be deducted from the Initial Single Premium and, likewise, for the subsequent recurring premium instalments, until the policyholder pays the recurring premium instalments under the Recurring Premium Plan.

According to the experts, rates will continue to rise at a slower pace than in 2022, while we will have to wait until 2024 to see a reduction. What scenarios are opening up for investors? 

On the financial side, 2022 was marked by the first interest rate hike decided by the European Central Bank after a decade in which rates had been kept at deficient levels through the purchase of government bonds.

 In July^[1], however, the Governing Council of the ECB decided to raise the three key interest rates by 50 basis points, “in line with its strong commitment to fulfilling its mandate to preserve price stability”. For the same reason, another even sharper intervention followed in September(+75 basis points), after which came a rise of 50 basis points in December. The same happened on the other side of the ocean, where the Fed also revised its interest rate policy.

In the new year, analysts and observers are waiting to see what the next moves of the European and US central banks will be. Monetary policy has an impact on the economy and, consequently, becomes one of the variables that investors have to take into consideration when planning their asset allocation.

Monetary policy: the impact on the economy

Monetary policy is the set of money supply and interest rate choices that are generally made by a state’s central bank to achieve economic policy objectives.

In Europe, with the Economic and Monetary Union, the Member States have delegated this task to a single institution in practice: the European Central Bank. As clearly stated^[2], it has the principal task to keep prices stable, in favor of economic growth and employment.

As explained by the ECB itself, in fact, its objective is solely to “preserve price stability by ensuring that inflation remains low, stable and predictable”. The mission is to achieve an inflation rate of 2% in the medium term. “We pursue this goal symmetrically: for us, overly low inflation is just as bad as overly high inflation” explains Europe’s top banking supervisory body.

When a recession or crisis marks the economic environment, as was the case after 2008–09 and after 2012, the response of central banks is usually to adopt an expansionary monetary policy. By reducing key interest rates and buying securities, and through soft loan schemes and open market operations, central banks help to keep government bond rates low and stimulate liquidity to encourage consumption and business investment.

Conversely, when inflation is excessive or prolonged, as has been the case since 2022, prices rise so high that they erode the purchasing power of households and businesses. At this point, the central banks intervene to curb the price run with a restrictive monetary policy, which reduces the amount of money in circulation by reducing the direct purchase of securities and raising interest rates.

Balance is the key word here: an overly expansive monetary policy can, in fact, lead to excessive inflation in the medium term, while one that is too restrictive can trigger a downward spiral on the economic growth front, holding it back.  

Why central bank decisions also affect investments

In fact, monetary policy plays an important role in economic system trends, households’ and companies’ access to credit, trade, and – directly and indirectly – also financial markets.

Interest rate policies influence the cost of money, and thus also the cost of public and private debt. On the financial side, this has an impact, for example, on government bond yields and, therefore, on the choice between bonds and equities when making asset allocations.

Central bank policies also condition currency exchange ratios in international markets, because higher interest rates attract foreign capital as they offer higher yields than other countries, leading the reference currency to rise. This aspect, therefore, has to be assessed with a view to the geographical and currency diversification of one’s investment portfolio.

Another key aspect is the ability of monetary policies to maintain economic stability. As explained by the Central Bank itself^[3], “the financial system benefits from price stability: it is easier for citizens and companies to plan and invest knowing that prices will not change much over time”.
A symbolic case is the 2008 financial crisis, which, by disrupting the flow of money in the economy and creating unstable financial markets, led to an unstable system in which citizens and businesses struggled to access finance and, consequently, to restart the real economy. Therefore, the ECB in Europe and the Fed in the US have adopted an expansionary policy to help keep prices stable, helping the economy and the financial system to recover.

Now the international conditions are different from 2008 but no less complex. In a situation still feeling the effects of COVID, rising energy costs, and geopolitical instability, the financial market is looking closely at the policies of the ECB and FED to see if and how much they will be able to intervene to create stable conditions.

According to forecasts^[4], the ECB should continue to expect a further increase in rates in 2023, albeit reduced compared to 2022, while only in 2024 could this lead to a reduction, if the measures taken in this two-year period have had their full effect and inflation has come down towards 2%.

Will this be enough to maintain market stability, considering that there are many variables affecting the stability of the system?
Certainly the rise in rates, despite being smaller, indicates that the top banking authorities still expect inflation to rise in 2023, against which solutions focused on assets such as gold – a safe haven asset par excellence – may allow portfolio diversification consistent with their objectives of capital preservation and enhancement.

^[1] https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220721~53e5bdd317.it.html

^[2] https://www.ecb.europa.eu/ecb/tasks/monpol/html/index.it.html

^[3] https://www.ecb.europa.eu/home/search/review/html/monpol-financial-stability.it.html

^[4] https://www.bloomberg.com/news/articles/2023-01-30/ecb-rates-march-in-focus-after-half-point-hike-assured-this-week

Career prospects and dynamics play a crucial role in financial planning, as they impact on available incomes and the need for protection. After COVID, big changes are taking place in the European labor market. Let's take a look at them. 

Work is one of the cornerstones that guide most of the important choices everyone must make throughout life. One's educational path, for example, is normally focused on acquiring the skills relevant to a certain type of profession, just as the timing of certain personal choices, such as starting a family or buying a house, is dictated by career developments.

Financial planning and investment choices are also closely linked to work dynamics. Indeed, one's current and future earning capacity depends on work, since pensions are also calculated based on the income received during working years.
A young person who has the prospect of finding employment and access to stable, growing incomes will tend to make different investment choices – probably more oriented towards enhancing the value of assets than safeguarding them – than someone working in an employment market that provides no guarantees of stability.

For this reason, when constructing an investment portfolio, it is also useful to consider the individual's present employment situation and future prospects, bearing in mind that these depend not only on the individual's abilities but also on the environment in which that individual lives. In a globalized world, this is no longer simply a local or national matter but must extend to at least the European level.

Labor in Europe: the impact of COVID

International mobility, the result of the harmonization policy between European states, has helped to create a labor market that, if it cannot be called European, is nevertheless integrated across different countries of the Old Continent.

The European Commission, which monitors labor mobility between Member States, noted in its latest available report how the number of Europeans who live and work in another European country is steadily increasing: in 2019, 17.9 million Europeans resided in another EU country, 13 million of whom were of working age^[1].

One cannot, of course, overlook the impact of the pandemic, which has affected all countries and Europe as a whole. Before the economic impact of the COVID-19 crisis began to make itself felt, the labor market recovery in Europe was bringing the EU employment rate closer to the 75% target set by the EU2020 strategy.

A very detailed picture of the impact of COVID on the labor market in Europe was provided by Eurofound, European Foundation for the Improvement of Living and Working Conditions, in its publication "Recovery from COVID-19: The changing structure of employment in the EU" ^[2]. According to the analysis, COVID came to an abrupt halt, but the recovery was rapid, helped by policy interventions and public support at both national and European levels. In particular, employment levels in Europe have returned to pre-crisis levels in two years, compared to almost eight years after the 2008 financial crisis.

However, there were large disparities between sectors. While employment in hotels and restaurants, wholesale and retail trade, and transport recorded a cumulative loss of 1.4 million workers between 2019 and 2021, the information and communication sector added 1 million jobs during the same period.

Although job losses during the pandemic were concentrated in low-paying jobs, the upturn in employment levels in 2021 was driven by growth in well-paid jobs and occupations. Throughout the period 2019-2021, increases in well-paid jobs were greater among women than men in the EU27, while at the same time, job losses were more acute for women in low-paid jobs.

According to Tina Weber, Head of Research at Eurofound, Employment Unit: "There are still six out of ten people who are on open-ended, non-time-limited contracts. Although the figures for "atypical work", i.e. part-time and fixed-term employment, have not really changed in the last five to ten years, they belie a trend towards more precarious forms of work and people with precarious contracts do not have the same access to employment or social protection".

Aging population

The legacy of COVID is thus greater inequalities between well-protected workers and workers with limited access to social protection and employment rights.

This trend dovetails with another macro-trend, which has been ongoing for some time, namely the increasing age of the population. This poses many challenges in relation to employment, working conditions, living standards, and welfare, as it gives rise to concerns about the sustainability of pension systems and labor supply. In 2016^[3], the employment rate of older workers aged 55-64 in the EU stood at 55.3%, compared to 66.6% for those aged 15-64, where the largest increase was among women.

The European statistics^[4] show how demographic dynamics have already significantly altered the European labor market, with a steady growth in the portion of employed persons between 55 and 64 years old(12.5% were in this group in 2009, and 19% will be in 2021) and a decrease in the proportion between 15 and 24 years old (9.2% in 2009, 7.8% in 2021).

In the long run, the trend shows that the 55-64 age group is tending to grow and be less volatile than younger workers, even in the 2020 COVID years.
What will the future look like? In order to maintain the sustainability of the system, flexible forms of retirement are being considered, providing the opportunity for prolonged employment. The risk otherwise is that the burden of welfare spending will put a strain on the welfare system.

In a context of increased precariousness and possible reduced protection from the public system, financial planning is presenting an opportunity to build forms of supplementing labor income and pensions, with solutions that make investment accessible through customization based on income capacity, and that facilitate it even in periods of job insecurity.

^[1] https://ec.europa.eu/social/main.jsp?langId=en&catId=89&furtherNews=yes&newsId=9877

^[2] Eurofound (2022), Recovery from COVID-19: The changing structure of employment in the EU, Publications Office of the European Union, Luxembourg https://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef22022en.pdf 

^[3] https://www.eurofound.europa.eu/it/topic/ageing-workforce

^[4] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Employment_-_annual_statistics#Impact_of_the_COVID-19_pandemic_and_recovery

NOVIS' approach has always been to support customers throughout their lives, adapting products to their evolving needs. Flexibility is also crucial for dealing with the international backdrop of uncertainty.

As was the case in previous years, 2023 could also be a year characterized by uncertainty at the global level, as the effects of the war in Ukraine, rising energy prices, and inflation will continue to be felt, also affecting the financial markets. How should investments be dealt with in this context?
A keyword is flexibility, i.e. the ability to adapt the portfolio to the contingency of the moment, so as to keep the investment in line with one's objective and risk profile.

This is a feature that NOVIS has always included in its products.

Adaptability to scenarios: the NOVIS approach

Since its inception, NOVIS, an international insurance company specializing in life insurance, has always been committed to developing products that can support investors throughout their lives.

This has led to the development of insurance and investment solutions capable of adapting to changing needs and requirements, which vary with age, career progression, family dynamics, and health-related care needs.

To be able to manage the many variables that may arise in its life cycle, NOVIS has introduced important elements of flexibility into its products, which enable it to align the mechanisms of investment – which naturally have their own dynamics in relation to the financial markets as well – with the needs of the investor.

Any examples?

On the insurance front, in addition to the possibility of choosing between annuities or a lump sum, NOVIS products make it possible to add insurance coverage or insured persons without restrictions on numbers as the family situation evolves. This makes it possible to maintain the same insurance solution over time, increasing the number of beneficiaries and insured persons without administrative costs (only the premium is adjusted) and without entering into new contracts.

Investment flexibility with NOVIS

In strictly financial terms, NOVIS has a diverse range of funds from which investors can choose to define how assets are to be allocated at the start of the contract, according to their investment profile. However, changes can be made each month to the allocation of insurance funds, by adapting one's portfolio to financial market trends in line with one's objectives and profile.

An invaluable ally in this respect is the Switch, designed by NOVIS to give the option of divesting initially subscribed units in full or in part at an early stage and reinvesting them in another internal fund for the corresponding counter value. With Switch, it is thus possible to make a long-term investment flexible, maintaining the same investment solution within a diversified portfolio. However, it can be changed over the course of a lifetime.

Portfolio diversification, a broad time horizon, and flexibility tools, such as those devised by NOVIS, along with expert advice are the key to navigating a constantly changing scenario and not giving up emerging opportunities while continuing to pursue long-term goals.

Focusing on government bonds of Eurozone countries, the NOVIS Guaranteed Growth Insurance Fund offers the possibility to diversify and balance portfolios, with a solution that guarantees the value of the invested capital. 

The search for security is one of the needs pursued by investors, along with the return. However, these two objectives are at odds, because the return is closely linked to risk: the riskier an investment is (and therefore potentially profitable), the less absolute assurance of interest and capital repayment can be given.

In order to balance these two requirements, however, it is possible to construct investment portfolios in which the more profitable component is flanked by more capital-return-oriented solutions that invest in instruments traditionally considered low-risk, such as government bonds.

For this purpose, NOVIS, an international insurance company, has since its inception in 2013 created the Guaranteed Growth Insurance Fund, a fund that provides the opportunity to rebalance portfolios, always with a view to investment diversification.

Guaranteed Growth Insurance Fund: what the NOVIS Fund is

As an insurance company, NOVIS specializes in life solutions that offer a wide range of long-term protection and investment opportunities through its internal funds, making it a one-stop shop for both insurance protection and investment.

A dominant feature of NOVIS is its focus on developing innovative proposals to seize emerging international opportunities and to provide answers to evolving investor needs.
To respond, in particular, to the need for investor security, such as has been emerging in recent months, back in 2013 NOVIS developed the Guaranteed Growth Insurance Fund, a fund that invests in government bonds issued by Eurozone countries.

This is an internal fund that provides 100% guaranteed capital for the entire duration of the insurance policy. In addition, this fund includes positive appreciations each month, equal to the expected return published annually on the company's website.  The announced rate of return for 2022, for example, is 3.66%.

The fund can invest in two types of underlying assets.
The main focus is on bonds, i.e. debt securities against which interest is paid. In particular, the bonds in which the NOVIS Fund invests are government bonds (i.e. bonds issued by states) or bonds guaranteed by state entities within the European Economic Area (Austria, Belgium, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Czech Republic).

In addition, the fund may invest in deposits, particularly those of banks in European Economic Area countries or in foreign banks operating in these states.

How is the Fund made up? Under normal market conditions, the company observes the following asset allocation limits:

• up to 100% investment in bonds;
• up to 20% in market instruments and deposits.

The portfolio structure is fixed; the proportion of investments in bank deposits may change over time, depending on market conditions, always with a view to pursuing the investor's objectives by adapting to their needs and market conditions.

 An update on the Fund's performance is always available on the NOVIS website, while the guaranteed return for the coming year is indicated annually.

Due to its characteristics, the NOVIS Guaranteed Growth Insurance Fund can help diversify the portfolio by investing in bonds of European countries.

In this way, it is possible to balance the equity component and investments in other assets, finding the most efficient mix to meet the investor's need for security and return.

2022 was a difficult year for the financial markets, which reacted to the international scenario with high volatility. 2023 will still be affected by international dynamics, but there could be an improvement. 

2022 was a very complex year, probably one of the most difficult faced by the financial markets, which experienced fluctuating trends and high volatility.

The war in Ukraine took place in highly challenging international circumstances related to the COVID pandemic, with consequences for rising energy prices that hit businesses and households and led to higher inflation in Europe.

The climate emergency also overshadowed this situation, in response to which the complex ecological transition was initiated, requiring significant public-private investment. 

With 2022 set aside (or almost), all eyes are now on 2023: what kind of year will it be? What can we expect on the financial market front? How should investments be managed?

Towards 2023: the unknown inflation factor

One of the things that characterized 2022 and marked a break from the past was the rise in inflation, which reached record highs in Europe. From a financial point of view, it was probably the most important, long-awaited event, which also led investors to review the construction of their portfolios. 

In the Old Continent, the increase is mainly driven by supply-side dynamics, particularly energy price trends, while in the US inflation is more related to increased demand for goods and services that are available in smaller quantities due to supply chain problems, which drive up prices.

On the two continents, the central banks (FED in the US, and ECB in Europe) reacted in the same way, albeit at different times. That is, they raised interest rates to “dry up” a large amount of liquidity injected in previous years to cope with the major international crisis of 2008 and 2012.

In fact, the raising of rates by central banks increases the costs associated with borrowing and makes saving more attractive: if the demand for products and services falls, then prices should rise less rapidly, remain unchanged or even fall, thereby keeping inflation under control.

What will happen in 2023? It is always very difficult to make predictions, as there is always the risk of an unforeseen event (the “black swan”) looming over all analyses, as was the case with COVID, which can turn everything upside down, for better or worse.

However, from the information on the central banks' monetary policies, one can at least draw a rough picture. As early as 14 December, for example, a slowdown in interest rate hikes by the FED is expected given the latest US inflation data, which fell to 7.7% after a peak of 9.1% in June, a sign that the inflation rate could slow down with a consequent easing of monetary tightening by the FED.

US dynamics are generally precursors of European ones, so we may see a similar trend for interest rates in the coming months from the ECB, which already pointed out in November that “inflation will start to slow down in the first half of next year and that we may be very close to the peak”^[1].

One point remains, however, which could cause all forecasts to be revised. According to the International Monetary Fund, a share of inflation in Europe cannot be explained based on traditional criteria^[2].

Therefore, inflation in 2023 remains an unknown factor, at least for Europe, and enables the future effects of monetary policies to be defined with certainty.

Geopolitical risks: what will happen in 2023?

International tensions are the other big unknown factor in the coming year. On top of everything, the war in Ukraine is certainly dominating, because a new definition of global geopolitical relations is also expected from its developments.

In a globalized and interconnected world, evolving tensions between China and Taiwan could also have an impact on the European economy, as well as possible catastrophes related to climate change, which could hit at any latitude and generate chain reactions that become global.

Internal country factors will also play a role. The rising cost of living and the deterioration of the labor market will serve to aggravate social inequalities, which will require particularly careful management by governments to avoid destabilizing countries.

The combination of these variables shows that, despite a glimmer of hope, 2023 will still be a complex year, with economic, geopolitical, and financial risks. However, as is now well known, crises also bring with them opportunities. A symbolic example is the ecological transition, stimulated precisely by the war in Ukraine, which has consolidated the need to move away from fossil fuels to produce energy.

Therefore, managing uncertainty, which has become the dominant feature of the new millennium, may be the key to facing the new year on the investment front.

^[1] https://www.ansa.it/sito/notizie/economia/2022/11/24/bce-ipotesi-stop-a-rialzi-dei-tassi-se-ci-sara-una-recessione-profonda_838592d8-a928-434f-9e5a-97060da3ff6c.html

^[2] https://www.imf.org/en/Blogs/Articles/2022/10/23/europe-must-address-a-toxic-mix-of-high-inflation-and-flagging-growth

Against the backdrop of stagflation, which is causing investors to reorient their portfolios, there is already an increased demand for bond instruments, with signs of focus on government bonds in particular.

Inflation rates taking the eurozone back to the 1980s^[1], interest rate hikes by central banks, and downwardly revised growth estimates^[2] are creating a new scenario for the global economy, which is overshadowed by the uncertainty surrounding the conflict in Ukraine and rising energy costs.

After years of subdued inflation and relative stability on the geopolitical front, investors are navigating these profound new changes: on the one hand, they are seeking to deduct their savings, which have grown during the pandemic years, and returns from the erosion of purchasing power produced by inflation, while on the other hand they may be disoriented about investment opportunities in a global economy exposed to the risk of stagflation.

It will take a few months to understand investors’ asset management choices and whether the desire to seek refuge in investments considered safe will prevail, but in the meantime bonds, in which there is growing interest, are a harbinger of things to come.

What are bonds

Bonds are securities that give the investor the right to receive, at the contractually defined maturity, a reimbursement of the sum paid in and remuneration by way of interest, called a coupon. The issuer may be the state or another public entity (government bonds), a bank or company (corporate bonds), or supranational bodies (supranational bonds).

The bond in fact represents a debt for the issuer because it uses the sum received for financing.  On the contrary, for the investor, it is a credit, which can be acquired on the primary market, i.e. at the time of the first issue, or on the secondary market, i.e. subsequent to the issue, from whoever has already bought them (in the latter case, the purchase takes place at the market price).

The world of bonds is very broad, encompassing various types of bonds depending on how and when principal and interest are repaid.  The coupon, for example, can be either fixed-rate, when it periodically guarantees an amount of interest determined in advance, or variable-rate, when the interest paid depends on financial, real (inflation rate), or currency (exchange rate) indices.

However, bonds are always structurally different from shares: as debt securities, they give the right to receive a coupon for the money lent, in addition to the return of the principal at maturity. With shares, one participates in the risk capital of the company, becoming its owner for the share held: if the company does well, the value of the share goes up, and vice versa.

This does not mean, however, that bonds are risk-free: for instance, the issuer may have solvency problems and be unable to repay its debts.

Inflation effect on bonds

As always, when it comes to financial markets, there are many factors and variables to consider, and it is not possible to make firm predictions even concerning the impact of inflation on bonds.

In a very intuitive way, it can be said that for those borrowing the money (the bond issuers) the increase in the cost of money entails an additional burden, whereas those who lend money by acquiring bonds should theoretically benefit from higher yields.

We have to use conditional because there may be mixed effects, which also depend on the type of bond.
Rising interest rates in particular result in new bond issues having a higher yield than those already in circulation, which is why the price of the latter falls. “If the bond is held to maturity,” explains Morningstar analysts^[3], “it will be redeemed by the issuer at par and the subscriber can invest the proceeds in new bonds with higher yields”.

On the other hand, inflation is an “enemy” for fixed income investments, e.g. fixed coupon bonds, where regular interest payments remain fixed until maturity, exposing the yield to erosion of purchasing power.   

That is why there is no single answer as to the impact inflation can have on bond investments. There are also differences between long-term and short-term bonds. Since early 2022, Morningstar again noted a greater penalty for the Euro long-term bond category than for short-term funds, which were less affected by rising rates.

Source: Morningstar Direct. Figures in euro as of 30 August 2022. Base 100 euro.

Increase in bonds in a portfolio

Notwithstanding the difficulty of predicting how the financial market will evolve in light of the current economic conditions, the signals coming from investors tend to lean more and more toward bonds.

According to Morningstar’s latest analysis of European flows,^[4] investors returned to bond funds, after outflows in the first part of 2022. Net inflows in Europe amounted to euro 10 billion, with investors focusing mainly on euro corporate bonds, global bonds hedging currency exposure in US dollars (USD hedged), euro government bonds, and emerging market bonds.

The reason is mainly related to the desire to control risk: compared to shares, bonds generally have much more stable performance, even when interest rates rise^[5].

Source: Morningstar Direct, 31 July 2022

Morningstar analysts explain that^[6] “since 1926, for example, equities have suffered 119 quarters of negative returns. In about two-thirds of these periods, bonds recorded positive returns. Moreover, the extent of losses for bonds was generally much smaller”.

Investors are likely to see bonds as a way to weather a possible recession, in an environment where rising interest rates in both Europe and the US may create yield opportunities.

This is why experts expect a new season for bonds, with investors looking for solutions to diversify and optimize their portfolios.

^[1] https://formatresearch.com/2022/10/19/eurostat-inflazione-annua-area-euro-fino-al-30/#:~:text=L'inflazione%20annua%20dell'area%20dell'euro&text=L'inflazione%20annuale%20dell'Unione,ufficio%20statistico%20dell'Unione%20europea.

^[2] https://www.weforum.org/agenda/2022/08/eurozone-economy-economic-outlook/

^[3] https://www.morningstar.it/it/news/226235/rialzo-dei-tassi-quale-impatto-sui-fondi-obbligazionari.aspx

^[4] https://www.morningstar.it/it/news/226948/perché-gli-investitori-sono-tornati-sulle-obbligazioni.aspx

^[5] https://www.morningstar.com/articles/1084518/what-do-rising-interest-rates-mean-for-diversification

^[6] https://www.morningstar.it/it/news/226235/rialzo-dei-tassi-quale-impatto-sui-fondi-obbligazionari.aspx

The fund invests in companies providing digital technologies, such as those developing and providing cloud computing, but also related to Cyber Security and Artificial Intelligence. 

The transition from the analog to the digital world is bringing new challenges such as digital literacy and opportunities for growth. Traditional economic spheres, such as manufacturing, were among the first to tap into the potential offered by digital technologies. For instance, they launched Industry 4.0 projects, in which normal production processes in sectors of the so-called Old Economy (think of the steel industry) have found new development potential thanks to the application of the Cloud or the Internet of Things.

On the job front, too, new profiles have emerged, linked to the use of digital technologies. Just think of Big Data analysts, figures that have arisen precisely due to digitalization, which makes it possible to accumulate a large amount of data for analysis.

Then, with COVID, we started talking about phygital, to denote the mixing and coexistence of physical and virtual spaces.

Every transformation brings with it uncertainties but also many opportunities. In this respect, digital technologies represent an added value that can regenerate traditional sectors of the economy and open up new growth scenarios, which were unimaginable before this revolution. The potential is still to be explored because the digital transition has in fact only just begun.

However, NOVIS, a European insurance company, is already ready to seize the opportunities opened up by this new revolution, providing investors with solutions to diversify their portfolios through digital assets.

NOVIS Digital Asset: what it is and how it invests

In response to the ongoing digital transition, in 2017 NOVIS created the fund Digital Asset, an internal, non-guaranteed fund that invests in investment funds or exchange-traded funds (ETFs) focused on shares of companies that develop and provide cloud computing or, in general, companies in the technology sector, with no geographical limits.

Why the focus on the cloud? The data shows that this information technology, which allows the Internet to be used to distribute software and hardware resources remotely, is among the most attractive to private companies and government bodies at all levels. According to Eurostat^[1], 41 percent of European companies used the cloud in 2021, compared to 36 percent in 2020. The growth trend is, therefore, positive, but there is still ample room for growth for one of the digital technologies considered strategic by the European Union, as a productivity factor for companies.

The long-term objective of the NOVIS fund is to achieve a return over the long term that is significantly higher than the inflation rate. In order to have the necessary liquidity, the Fund may invest a limited amount (up to 20%) in bank deposits in banks located in countries of the European Economic Area.

The return of NOVIS Digital Asset is linked to the performance of the three underlying, which make up the portfolio.

Cybersecurity, Cloud and Artificial Intelligence in the underlying of NOVIS Digital Asset

ETFMG Prime Cyber Security ETF (HACK™)^[2] comprises a portfolio of companies providing cyber security solutions, in terms of hardware, software, and services.

This is the first ETF targeted at the cyber security industry, a sector that is estimated to reach $345 billion by 2026^[3], as global digitization will also lead to increased demand for security.

The fund portfolio offers good diversification across equity capitalization, geographic distribution, and business focus.

The ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Prime Cyber Defense Index, a benchmark that tracks the performance of companies operating in cyber security technologies and services. 

The second underlying asset is First Trust Cloud Computing ETF^[4], an exchange-traded fund that seeks investment results that match the price and yield – before fees and taxes – of the ISE CTA Cloud Computing™ Index.
This is a modified equal-weighted index (calculated by averaging the percentage change of each of the listed stocks included in the group, regardless of their market capitalization or economic size) defined to replicate the performance of cloud computing companies. To be included in the index, a security must be classified as a Cloud Computing company by the Consumer Technology Association (CTA) and have the following criteria:

minimum market capitalization of USD 500 million;

minimum free float of 20%;

minimum daily trading volume in three months of USD 5 million.

Finally, the third underlying is the Global X Artificial Intelligence & Technology ETF, the ETF^[5] that gives investors access to companies with high growth potential engaged in the development and use of Artificial Intelligence technologies in products and services and companies that provide hardware to facilitate the use of AI for Big Data analysis.

The fund seeks investment results that match the price and return performance (before costs and fees) of the Index Artificial Intelligence & Big Data Index.

The structure of NOVIS Digital Asset’s portfolio changes over time depending on market conditions: in any case, the aim is to tap into emerging opportunities through digitization in order to diversify investments.

^[1]

https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Cloud_computing_-_statistics_on_the_use_by_enterprises

^[2] https://etfmg.com/funds/hack/#footnote-c-8

^[3] Alpha: https://seekingalpha.com/article/4476837-hack-etf-cybersecurity-stocks-to-ring-in-new-year

^[4] https://www.ftportfolios.com/retail/etf/etfsummary.aspx?Ticker=SKYY

^[5] https://www.globalxetfs.com/funds/aiq/

The digital transition is also impacting the insurance-financial sector, changing the relationship between companies and customers and opening up new investment opportunities. 

Digitization has spread extensively and successfully reached every sphere of economic, social, political, and working life in a way that few other phenomena have.

The web, and digital technologies in general, have profoundly transformed how we relate to each other, in every part of the world.  A gradual but inevitable revolution has ensued, further accelerated by Covid. This is because digital technologies were the element that helped to maintain interpersonal relationships, work, and study during the lockdowns. 

The insurance-financial world is involved in this major transformation of society. EIOPA's 2021 consumer trends report^[1] highlights how, across Europe, there has been a shift towards technological innovations throughout the product lifecycle. However, sales and distribution remain the most digitized stages of production.

There are two aspects where digitization will bring about a profound transformation in insurance: relationships with customers, which can be consolidated both in the decision-making phase and in the course of a contract; and the possibility of seizing investment opportunities in digital realities, which are increasingly fundamental to the economic growth of countries.

Digital and insurance: how relationships with customers are changing

According to the ISG Pulse Check-State of European Insurance Industry, 2021^[2] survey conducted by the global consultancy firm Information Services Group, the desire to offer customers a better experience is the main driver for digital transformation. This is reflected in the customization of products and offers, the possibility of accessing solutions directly from mobiles, and the simplification of contact points between operator and customer.

Simplified processes throughout the product lifecycle, possible lower long-term costs leading to greater financial inclusion, wider choice, product customization, more efficient claims handling, and increased service options: these are just some of the possibilities that digitization brings to the insurance-financial world, benefiting the relationship with potential and existing customers.

On the other hand, digital take-up opens up new challenges. Information, opinions, and personal experiences move quickly on social networks, forums, and chats, and reach “readers” all over the world. This helps to consolidate public opinion on a company, a product, or a service, regardless of whether one is a customer and whether the operator in question has an online presence.

It is a challenge for companies because it requires more effort than it used to, so businesses can prove their robustness. On the other hand, it is also an opportunity, because the possibility of communicating relatively directly with one's contacts, both real and potential, helps to shorten the typically perceived distance of operators in the insurance-financial market, laying the foundations for improved relationships of trust.

Digital economy, new investment opportunities

The use of digital has now also become central to the world of production. First large companies, then, in turn, SMEs, started to introduce specific technologies to streamline production processes and organization, so as to optimize time and costs. At the same time, they applied digital technology to products, successfully consolidating and conquering new markets.

In 2021, according to Eurostat^[3] 94% of European companies with at least 10 employees used a connection to access the Internet. Most European companies have an online presence: 78% have a website, 59% use social media, and 22% sell via e-commerce.

The growth of information and communication technologies (ICT) has the potential to improve services and products as well as to increase competitiveness. According to Eurostat itself, “it has a profound impact on how business evolves, affecting multiple aspects such as the organization of production, processes for service delivery, internal and external communication”.

Moreover, the digital economy is not only tied to the web but also includes hardware and software tools, which open up new market spaces to highly qualified operators capable of producing digital services and products. Businesses can also benefit greatly from new technologies, in terms of innovativeness and global competitiveness.

At a time when the global economy is overshadowed by uncertainties related to international tensions and the aftermath of the pandemic, the “turmoil” of the digital transition is also generating opportunities for investors who, through investment solutions focused precisely on digital assets, can diversify their portfolios by entering areas with high development potential.

^[1] https://www.eiopa.europa.eu/sites/default/files/publications/reports/summary-of-eiopa-consumer-trends-report-it.pdf

^[2] https://isg-one.com/articles/pulse-check-state-of-the-european-insurance-industry-2021

^[3] https://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20220120-1

Launched in August 2022, the fund responds to the demands of sustainability-conscious investors by allocating capital to clean energy and marine ecosystem entities. 

The global focus on sustainability is one of the main drivers that are transforming the financial and economic world. The realization that the state of the environment also impacts the health and well-being of the global population, as demonstrated by Covid, as well as the countless natural disasters that are occurring as a result of climate change, have accelerated the ESG (Environment, Social, Governance) approach to investing.

It is no coincidence that Europe is building a regulatory framework within which investors and financial operators can move to optimize ESG investment outcomes, combining returns with the ability to impact the environment and society positively.

This framework also includes the activities of NOVIS, an international insurance company, which has always placed great emphasis on sustainable finance.

The company in 2019 launched its Sustainability Insurance Fund, recognizing that everyone can make a contribution to reducing the negative impact of climate change.

From August 2022, in addition to the Sustainability Insurance Fund, the NOVIS Sustainability Plus internal fund has also been available, which offers investors the opportunity to diversify their portfolio by focusing on sustainability.

Sustainability Plus, how the new NOVIS fund invests

NOVIS's new fund focuses on very specific assets, consistent with the ecological transition encouraged at the European level.

First of all, the fund and its investments pursue the goal of sustainability by excluding issuers that are involved in arms production, tobacco, coal mining, oil extraction or unconventional gas. Also excluded are issuers classified as violating the principles of the United Nations Global Compact.

In addition, the fund invests directly or indirectly in shares or bonds that meet the following requirements and rules:

at least 45% of assets in energy-related companies without negative impacts on the environment (clean energy), such as the release and emission of greenhouse gases into the atmosphere like carbon dioxide;

in addition, at least 45% of activities are invested in the sustainable use of marine resources for economic development, improved livelihoods and employment, and preserving the well-being of the marine ecosystem (blue economy).

Clean energy: iShares Global Clean Energy UCITS ETF

This is an exchange-traded fund (ETF) managed by BlackRock Asset Management Ireland Limited and aims to replicate as closely as possible the performance of the S&P Global Clean Energy Index, an index that measures the performance of approximately 100 of the largest publicly traded clean energy companies globally that meet specific investment eligibility requirements and ESG exclusion criteria.

According to the Morningstar Sustainability Rating^[1], which assesses how well portfolio companies are managing ESG risks compared to other funds in the same Global Category, IShare Global Clean Energy has a rating of 4 out of 5.

The fund invests in companies involved in clean energy production or the provision of green energy technologies, both in developed countries and in emerging markets. Companies that exceed their emissions from coal use are excluded.

Being linked to specific sectors, countries, currencies and companies, the fund is more sensitive to localised events related to the economy, the market, politics and regulation.
 Geographical diversification is, however, broad.

Since its launch in 2007, performance has been stable, with growth after 2020.

Blue economy: ECPI Global ESG Blue Economy

Managed by BNP Paribas Asset Management Luxembourg, part of BNP Paribas, the fund seeks to replicate the performance of the ECPI Global ESG Blue Economy (NR) Index by investing in stocks of companies best organized to take advantage of opportunities offered by the sustainable use of ocean resources (coastal protection, eco-tourism, recycling, human capital) with a positive ESG rating.

The type of approach implemented is thematic: the target companies provide products and services that provide comprehensive solutions to specific environmental and social challenges, seeking to produce benefits for future growth in these areas, contributing capital to the transition to a low-emission and inclusive economy.

The Morningstar Sustainability Rating^[2] gives a score of 3 out of 5.

Over the past five years, the cumulative performance has been as follows:

Energy and the marine ecosystem are two cornerstones of the approach to sustainability that is driving the ecological transition globally, designed to create favorable conditions for the growth of companies dealing with these two topics.

Therefore, the new NOVIS fund can represent an opportunity to diversify the investment portfolio by seizing opportunities that emerge internationally. 

^[1] https://www.morningstar.it/it/etf/snapshot/snapshot.aspx?id=0P0000M64O&tab=0&reportLang=it

^[2] https://www.morningstar.it/it/etf/snapshot/snapshot.aspx?id=0P0001KTZ0

At the end of the NOVIS life insurance policy contract, you can choose whether to receive the capital in a lump sum or in the form of an annuity, scheduled to a specific time scale, thus supplementing your earned income or pension

At the end of an investment, is it better to receive all the capital in one lump sum? Or is it more useful to plan an annuity that supplements your income, whether from work or retirement, over time? The answer is linked to the objectives that each person set when they decided to take out a life insurance policy to protect and manage their assets.

NOVIS is an innovation that meets a range of needs

Aware that every investor has their own story and therefore different profiles and needs, NOVIS, an international insurance company is specializing in life insurance, has introduced important innovations in its insurance products.

Aware that insurance and investment solutions are an increasingly decisive component in the financial planning of families, professionals, and individuals wishing to protect their assets, NOVIS believes that these instruments should support clients in the evolution of the life cycle, ensuring adaptability to their changing needs over time.

Thanks to its ability to innovate, NOVIS has thus managed to reconcile the rules that underpin insurance products and ensure their robustness, with elements of flexibility that better meet people’s needs, which vary according to life situations. These may include a change in employment, the addition of a new family member, new international circumstances, and age-related needs.

With this in mind, NOVIS has also paid special attention to when the capital is repaid at the end of the contract. One of the company’s main innovations is thus the option of paying out everything in one lump sum or turning the amount accumulated into various financial instruments such as pensions, annuities, or even financial planning for children’s education expenses.

Lump sum or annuity: how to choose

In order to understand which option best suits your needs, you need to ask yourself: what is the ultimate goal of the investment?

This point, which is the critical aspect of all asset management choices, is crucial to understand whether it is better to receive the capital in a lump sum or to favor an annuity.

If the goal of the investment was to accumulate resources to make an important purchase (a house, for example), to realize a project such as starting a business for yourself or your children, or simply to have liquidity available to use in the family, receiving the capital in one lump sum is the answer to your needs.

What has been set aside over the years is paid out all at once and falls immediately into the hands of the beneficiary (the insured himself/herself or his/her loved ones), who can then use it as s/he sees fit.

If, on the other hand, there is no need to have the capital immediately, because the person concerned does not foresee any major expenses in the immediate future, it may be useful to think of a return in the form of an annuity which will supplement available income, whether from work or from a pension, by increasing spending capacity at regular intervals.

This alternative can be particularly useful from a pension perspective, especially for young people who risk a large pension gap and end up with half the income they were used to overnight. Alongside conventional forms of pension supplementation (pension funds) and new ones such as the PEPP, having an annuity plan also from the repayment of the invested capital helps to increase the resources at your disposal.

The annuity can also be useful where the beneficiaries are children, who can thus be given a periodic share of income to help them make investments in education or meet the costs of starting their own business.

Whatever your motivations, what is important is to be able to choose between different capital repayment arrangements, as provided by NOVIS, in order to freely opt for the solution that best matches your needs.

Obtaining protection from pure risks and managing capital to execute personal plans and tackle unforeseen events: with its innovative solutions, NOVIS provides life-long support to families.

In recent years, the succession of unforeseen and unpredictable global events such as Covid and international conflicts has generally increased people’s sense of vulnerability.

Climate change is increasing uncertainties about the national and international environment, generating physical damage to private individuals (e.g. companies, causing business interruption) and large-scale damage (the impact on infrastructure) which requires significant expenditure to restore the status quo.

The public system isn’t always efficient: when it comes to damage caused by natural disasters and when an accident or illness compromises human health, people run the risk of shouldering enormous expenses alone.

How can people protect themselves? Always attentive to monitoring emerging needs and guiding people as their needs evolve, NOVIS offers insurance solutions that bridge the protection gap while identifying investment opportunities for wealth management.

Protection from pure risks with NOVIS

Not everyone thinks about it, but the ability to work and therefore generate income is a fundamental primary asset on which personal well-being and that of your loved one hinges. The same applies to your ability to realize future plans.

This ability can be jeopardized by unforeseen events such as illness, injury, and disability, which compromise the ability to maintain financial stability for yourself and your family.

These situations can’t always be addressed exclusively with assets set aside in the form of emergency savings. This is because they require a major financial commitment, covering expenses to be met and loss of income, which can spell a crisis for a family.

On the other hand, one solution is pure risk insurance, which provides specific coverage against payment of a premium, calculated according to your coverage needs (insured capital, time-scale, beneficiaries).

Knowing how important it is to guide people to deal with pure risks, NOVIS has devised solutions to provide families with cover against premature death, illness, accident, or disability, even within a single policy that is flexible enough to adapt to different circumstances throughout life.

Solutions for the European market

NOVIS’s international dimension has led to this formula being implemented through solutions that differ in terms of the various countries the company operates in, but are similar in terms of its global approach to the protection gap.

For the Italian market, Safety Life is the term life insurance policy that allows the policyholder to choose between a fixed premium, which doesn’t change in their lifetime, and a gradually increasing variable premium, calculated based on the policyholder’s age at the time of subscription. The policyholder is guided as their needs evolve.

Again for Italy, Safety Life Plus provides comprehensive cover with additional guarantees for permanent total disability due to accident or illness, a cancer diagnosis, or total loss of self-sufficiency.

For Iceland, NOVIS Life Protector is a life insurance policy, taken out for a fixed term with a minimum term of 10 years, which provides cover against the risk of death or serious illness for 18 to 70-year-olds. For example, it can be a useful solution for parents in single-income families worrying about the economic stability of their loved ones in case their ability to work diminishes.

For Slovakia, NOVIS Bezpečný život (a safe life) provides life insurance in the event of death, plus optional additional guarantees in the event of accident, illness, operations, or disability. There is also an exemption from the payment of insurance premiums if a disability pension is granted.

Also for the Swedish and Finnish markets, NOVIS has set up accident and serious illness insurance, which provides for compensation to cover day-to-day expenses and secure the family’s future needs should the insured event occur.

 All NOVIS’ pure risk solutions are united by their ability to respond to the demand for protection from individuals, families, and professionals, with the flexibility and ability to guide people throughout their lives. This is what singles out the NOVIS approach.

Sustainability and performance: data analysis shows that ESG funds have proven to be profitable for investors and more resilient to international crises such as COVID.

Sustainable global investments have experienced strong growth, so much so that institutions such as those in Europe have set out substantial legislation to create a framework of common rules.

According to the Global Sustainable Investment Alliance's 2021 report^[1], by early 2020 ESG investments reached $35.5 trillion in the top 5 markets, growing by 15% in the last 2 years (2018–2020), and accounting for 35.9% of assets under management (they were 33.4% in 2018).

The purpose of sustainable investment is not only to allocate capital to support a cause close to one’s own value system but, as with any type of investment, it is also always to obtain a return.

Sustainable investments have in fact long been the “victim” of the false belief that high returns cannot be expected from this type of asset. In fact, like all financial activities, sustainable ones also reflect the typical logic and dynamics of all investments, which generate a return closely related to risk.

Better financial performance for sustainable companies

Given that, in addition to the positive impact on the environment and society, those who invest in sustainable funds are also still looking for a return, the question that investors usually ask is whether the integration of ESG principles into the investment process can help improve expected risk-based returns.

Researchers have also asked themselves this question and have produced multiple studies on the subject.

This area of research has focused, among others, on the meta-analysis^[2] conducted in 2015 by Gunnar Friede, Timo Busch, and Alexander Bassen of the University of Hamburg, who analyzed some 2,200 academic studies carried out between the early 1970s and 2014 on the relationship between ESG factors and corporate financial performance.

 Aggregating the results, it emerged that companies operating in line with ESG principles generate better financial results. In particular, 90% of the studies found a non-negative relationship between ESG and corporate financial performance. Even more important is that most have underlined a positive and stable impact over time.

Correlation between environment (E), social (S), and governance (G) strategies with corporate performance.

Further research^[3] conducted by Elroy Dimson (University of Cambridge and London Business School), Oğuzkhan Karakas (Boston University) and Xi Li (Temple University), also carried out in 2015, focuses the analysis on active share ownership (engagement), i.e. the process of continuous dialogue between company and investment company. The researchers found that companies’ ESG engagements generate a cumulative return of +2.3% in the year following the initial engagement; when engagement is successful, this percentage rises to +7.1%, which then tends to flatten out once the target has been reached. There were no market reactions to engagement commitments that did not meet targets.

Thousands of studies have shown that ESG engagement generates positive performance for companies and, consequently, for those who invest in them, at least in normal times. What happens when the financial market suffers the repercussions of international crises?

COVID, a test case for sustainable investments

The COVID crisis was the first major test case for the resilience of ESG investments, even in times of volatility.

It was not to be taken for granted, and yet even at such a complicated time as the pandemic, those who focused on sustainability experienced fewer shocks than those companies and investors who maintained a conventional approach.

Given the stock market collapse between February and March 2020 due to the panic surrounding the COVID-19 pandemic, with losses averaging close to 30%, the most virtuous companies in terms of ESG factors were in fact more resilient and less volatile^[4]. One possible explanation is that in the first wave of the pandemic, investors themselves moved more towards ESG funds, as opposed to traditional funds that suffered heavy net redemptions.

The same managers, faced with the need for liquidity to meet redemption requests from underwriters, have more often exited from securities with low environmental and social scores than more virtuous ones, contributing to the superior resilience of the greenest and most socially-conscious companies.

Morningstar’s final^[5] analysis shows that in 2020, 75% of sustainable indices outperformed their traditional counterparts: 91% of baskets considering ESG factors lost less in downturns over the past five years.

So will the future of investment be ESG? In the financial sector, it is well known that what happened in the past cannot be considered representative of what will happen in the future. However, given the analysis and studies conducted over the past decades, it cannot be ruled out that globally recognized ESG-conscious might adapt their internal dynamics so as to be more resilient and have the support of the market even in times of crisis.

Diversifying one’s portfolio by including sustainable solutions can therefore prove to be an efficient strategy, also in light of the opportunities that are emerging with the energy, ecological and digital transition underway at the European level.

^[1] http://www.gsi-alliance.org/wp-content/uploads/2021/08/GSIR-20201.pdf

^[2] https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917

^[3] https://deliverypdf.ssrn.com/delivery.php?ID=377005116116023069076066073103116000010018028080064039094024116077084089110001113121101050022063001111037108031001121065028089005025004048052092080091113065067074000021060025085103019125072127070019096004123116113092065031017028015091082126027092007&EXT=pdf&INDEX=TRUE

^[4] https://www.morningstar.it/it/news/215167/perch%C3%A9-i-titoli-esg-hanno-resistito-al-covid-19.aspx

^[5] https://www.morningstar.it/it/news/211341/gli-indici-sostenibili-passano-il-test-del-2020.aspx

Entering the world of work when the global financial crisis exploded, those born between 1984 and 2000 went from Covid to the first war in Europe after 75 years of peace in the space of two years. That is why they invest with thought for their future welfare, but also stability in the present and sustainability.

They represent about a quarter of the European population^[1] and by 2030 will account for 75 percent of the labor force in Europe^[2].  Known as Millennials, i.e. those born between 1984 and 2000, they grew up in a very different world than the previous generations of Baby Boomers and Generation X.

After the affluence of the 1980s and 1990s when they actually grew up, Millennials were hit by the subsequent shock of the 2007–2008 global financial crisis and then 2012 one, in the very years when most were entering the world of work. Just as the economy was beginning to stabilize, the Covid pandemic arrived, while almost in parallel the war in Ukraine destabilized the economic, political, and social framework internationally.

Having grown up in a scenario of uncertainty, however, Millennials are also a highly technological generation, the products of globalization who consider themselves “citizens” of the world. This is also why they wish to play their part in improving things, especially on the environmental front^[3].

How is Millennials’ experience reflected in the financial sphere?

Technologists and environmentalists: who are the new investors?

Despite the difficulties in having stable incomes and dynamic careers due to the profound transformation of the labor market after the 2008 and 2012 financial crises, Millennials (but also the subsequent Generation Z) are expected to represent the most disruptive generation in terms of economies, markets and social systems globally^[4]. 

In the coming years, in fact, the largest ever transfer of wealth from previous generations is expected: Millennials will thus have to manage the legacy of their predecessors accumulated over decades of substantial wealth, as well as their own incomes.

Investment patterns are also likely to change, due to an experience that Millennials in Europe have in common (disregarding country-specific circumstances).

First of all, the use of technology: although Millennials were born into a still analog world, they soon learned to use new technologies not only for work but also for leisure. This has led them to be predisposed, if not accustomed, to a high degree of personalization in their purchase and consumption choices in all spheres of life, including finance.

The second common aspect is the realization that it is not enough to save^[5], but one must also manage one’s savings efficiently, also relying on intermediaries or professionals at any rate. This is in light of Millennials’ low financial literacy, albeit to a lesser extent than Boomers.

The third distinguishing feature of this generation is the focus on the environmental, social, and good corporate governance impact of investments (ESG). According to research by the Morgan Stanley Institute for Sustainable Investing^[6], 95% of Millennials among High Net Worth Investors are interested in responsible investing and 57% have actually changed their portfolios to comply with ESG criteria. Especially among women, increasingly leaders of the financial market, interest in social as well as environmental issues is growing.

Not only retirement savings: what Millennials expect from investments

The impacts of Covid are still difficult to grasp, but in addition to increased vulnerability, the pandemic has certainly generated a greater sense of responsibility towards others.

As the Deloitte study shows^[7], the reaction to the pandemic has been to increase people’s positive role in society, with a greater focus on supporting local productive activities and greater respect for the environment.

Furthermore, since Covid, there seems to be an increasing focus on the quality of life that is bringing about new dynamics in the labor market. Workers are more focused on choosing or pursuing a career not only based on the income they can earn from it, but also on their psycho-physical well-being.

This attitude could also be reflected in the search for investments that are not only aimed at achieving future goals, but also at ensuring the realization of projects in the short and medium term. 

In this connection, retirement certainly remains one of the reasons why Millennials manage their savings, but it isn’t the only one. The prospect of a poorer pension than their parents is undoubtedly one of the main concerns not only of those directly concerned but also of institutions, so much so that Europe is intervening with a form of European welfare.  

However, for a generation where the retirement age is increasing, wealth management is also becoming important in people’s actual lifetimes and not only for the post-employment future.

For Millennials, having assets to rely on to provide stability to their life projects in a constantly changing scenario is becoming as great a need as protecting themselves on the pension front. For their part, these investors have the advantage of the time factor because a long investment horizon allows even small savers to enhance the value of their capital, without placing an excessive strain on the family budget^[8].

The answer to these needs can be found in solutions that take into account protection and investment needs and can help Millennials in the evolution of their life cycle.

^[1] https://www.infodata.ilsole24ore.com/2021/11/02/quanti-millennials-nel-mondo-infografica/

^[2] https://knowledge4policy.ec.europa.eu/foresight/topic/changing-nature-work/hyper-connected-tech-savvy-millennials-workforce-rises-2030_en

^[3] https://www2.deloitte.com/my/en/pages/about-deloitte/articles/deloitte-gen-z-millennial-survey-reveals-two-generations-striving-for-balance-and-advocating-for-change.html

^[4]http://www.quellocheconta.gov.it/export/sites/sitopef/modules/quaderni_ricerca/Quaderno_n13.pdf

^[5]https://www2.deloitte.com/content/dam/Deloitte/global/Documents/deloitte-2022-genz-millennial-survey.pdf

^[6] https://www.msci.com/documents/10199/07e7a7d3-59c3-4d0b-b0b5-029e8fd3974b

^[7] https://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/deloitte-2020-millennial-survey.pdf

^[8] https://www.forbes.com/sites/worldeconomicforum/2021/02/08/what-the-rise-of-the-millennial-investor-means-for-a-sustainable-world/?sh=1d0464a865cc

Rising temperatures, natural disasters, and long periods of drought are impacting society and economic development. That is why insurance and finance stakeholders are also called upon to take this new risk into account. 

After an extremely hot May^[1], the summer of 2022 is shaping up to be one of the driest and with the highest temperatures in recent years across Europe^[2]. This is having negative consequences for the environment and human health, given the difficulty of even accessing a primary commodity such as water.

This is not an exceptional situation. According to the latest report of the Intergovernmental Panel on Climate Change (IPCC)^[3], global warming is causing increased changes in precipitation patterns, oceans, and winds in all regions of the world; in some cases, these changes are irreversible.  

As far as Europe is concerned, the IPCC itself predicts an increase in the frequency and intensity of extreme weather phenomena, including marine heat waves, and warns that a temperature increase of 2ºC will have critical effects on nature and people.

 Even for the insurance and financial world, climate change is becoming a priority, for two reasons.

Sustainable investments against climate change

First and foremost, as institutional investors insurance companies can make their own positive contribution to the fight against climate change by tapping into the increased sensitivity of private investors on this issue.

On this front, there are also numerous regulatory adjustments planned by European as well as national institutions to create a common, clear, and transparent framework for ESG investments. This is the focus of, for example, the Sustainable Finance Disclosure Regulation (European regulation that has changed finance’s approach to sustainability) as well as the taxonomy of sustainable investments for the climate, to which insurance and financial operators must adapt.

For example, on 4 June 2021, the European Commission adopted the Delegated Regulation on climate risk adaptation, within the framework of the European taxonomy, which sets out the technical screening criteria needed in order to determine the conditions under which economic activity can be considered to make a “substantial contribution” to climate change adaptation (or related risk mitigation) and to determine whether this economic activity does not cause significant damage to any of the environmental protection objectives.

But why is Europe so specifically concerned about investing in trying to reverse climate change? The reason is that there is now an awareness of the impact on health, the environment, but also on the economy.

According to data provided by the European Council^[4], between 1980 and 2020 more than 138,000 people lost their lives in the European Union due to extreme weather and climate phenomena: the countries most affected were Germany, Italy, and France.

Moreover, over the past 40 years, financial losses caused by extreme weather and climate phenomena in the EU-27 have exceeded EUR 487 billion, far more than the EU has disbursed in two years for all its policies and programs.

However, according to scientists, human action can change the course of events. Immediate, rapid, and large-scale reductions in greenhouse gas emissions and achieving a net-zero carbon balance can limit climate change and its effects.

This is why the financial insurance world can also play a key role, directing investments – within a common regulatory framework – towards those realities that can really help mitigate climate change.

Climate risk monitoring

The second reason why the sector is directly affected by environmental changes concerns climate risk management understood as the interaction between vulnerability to adverse impacts, the region’s exposure to climate impacts, and the hazards caused by climate and climate change (extreme events and climate trends).

For insurance companies, there are two types of climate change risks in particular.

The physical risks are linked to the impact that extreme weather events have on ecosystems: hurricanes or floods that reduce or destroy productive capacity over large areas of land are, for example, “acute” situations, alongside which “chronic” problems can occur, i.e. climatic processes such as droughts and rising sea levels whose effects are felt over the long term. These situations can lead to business interruptions or to claims for compensation from multiple entities affected by the damage caused by extreme events, which can stress the economic, financial, and insurance system.

Conversely, we speak of transition risks to indicate the consequences of the process, triggered in Europe at the global level, to reduce greenhouse-gas emissions. See, for example, the European Union’s decision to ban the production of vehicles with endothermic engines from 2035, which will cause a revolution in the automotive industry.

All these elements make it crucial for asset managers, such as insurance companies, to assess and manage climate risk.

Eiopa, the European insurance supervisory authority, in its latest report^[5] on European insurers’ exposure to climate change risks showed that, from its analysis of a large sample, European groups and individual companies have historically been able to handle claims arising from the three major European natural catastrophes analyzed in the report.

The report shows that there is widespread awareness of climate risk because everyone expects that the various property-related branches of business will be affected by the physical risks of climate change. There is also a shared belief that adaptation and mitigation measures will play a crucial role in reducing risk levels in the future.

Companies are not alone, as EIOPA will continue to work with the relevant national authorities and the industry to raise awareness and help prepare the industry for the effects of climate change, for the benefit of customers, who also need protection to deal with the increased vulnerability to which climate change exposes them.

^[1] https://climate.copernicus.eu/copernicus-may-2022-globally-joint-fifth-warmest-heatwave-leads-temperature-records-southwestern

^[2] https://www.france24.com/en/france/20220618-marker-of-climate-change-europe-swelters-in-record-breaking-june-heatwave

^[3] https://www.ipcc.ch/site/assets/uploads/2022/04/AR6_Factsheet_April_2022.pdf

^[4] https://www.consilium.europa.eu/it/infographics/climate-costs

^[5] https://www.eiopa.europa.eu/document-library/discussion-paper/discussion-paper-physical-climate-change-risks_en

The European insurance company promotes environmental and social characteristics through the Sustainability Insurance Fund, a fund aligned with the Sustainable Development Goals of the UN 2030 Agenda. 

The challenges posed by climate change have now entered the agenda of international institutions, such as the United Nations and the European Union, but also of financial sector players. They can help achieve the sustainability goals defined globally by the UN 2030 Agenda and the Paris Agreement, by channeling invested assets towards activities and companies that have a neutral or positive impact on the environment, offering investors a return consistent with their profile.

Moreover, European insurance company Novis launched its Sustainability Insurance Fund in 2019, recognizing that everyone can make a contribution to reducing the negative impact of climate change, which is endangering people’s very survival in different regions of the world.

NOVIS Sustainability Insurance Fund: the background

The Sustainability Fund is NOVIS' internal insurance fund which promotes environmental and social characteristics in line with the Sustainable Development Goals (SDGs) defined by the United Nations.

The Fund allows NOVIS to combine the need to specifically address sustainability risks with its investment philosophy based on indirect investments.

As stated in the sustainability document drawn up in accordance with the European regulation on sustainability-related disclosure in the financial services sector of March 2021, NOVIS is indeed working on defining its strategy focused on aligning its activities with the UN General Assembly-approved Sustainability Goals

Currently, the company’s investment decisions are made based on all available information about the financial instruments used, including alignment with ESG factors and sustainability criteria, despite not generally being a dominant factor in investment decisions.

In fact, NOVIS’ main objective is to make choices that are primarily geared towards providing a return to its customers by adopting broad risk diversification through indirect investments. This implies that, in assessing sustainability risk (an environmental, social, or governance event or condition that, if it occurs, could cause a significant negative impact on the value of the investment), the company must rely heavily on the methodology and investment decisions of managers.

To specifically address sustainability risk while maintaining an investment philosophy based on direct investments, the Sustainability Insurance Fund was therefore launched.

The philosophy of the NOVIS Sustainability Fund

The Fund aims to promote social and environmental characteristics, with an approach that is general and wide-ranging, and not targeted at particular aspects or objectives. This choice is the result of an open-minded approach on the part of NOVIS, which considers it inappropriate to commit to a long-term, prescriptive methodology that may not be flexible enough in the product life cycle and that would not allow it to adapt to future changes and challenges that are difficult to anticipate in the present.

The promotion of environmental and social characteristics is achieved by investing directly or indirectly in equity or bond instruments issued by companies that comply with stringent environmental, social and corporate governance criteria based on UN ESG investment benchmarks.

Indeed, one of the minimum criteria for the eligibility of underlying financial instruments is adherence to the Principles of Responsible Investment. Thus, the documentation provided by managers or issuers of financial instruments is assessed to see whether and to what extent the underlying investment funds include investments in companies:

focused on solving environmental problems;

working in areas such as efficient energy, the environment, health, and  improving social and demographic problems;

demonstrating long-term growth prospects and good management: it is assessed whether the company will add value to society in the long term and whether it demonstrates a responsible culture.

Should the regular quarterly review of the Fund’s composition show discrepancies with respect to the sustainability goals, NOVIS takes corrective action, e.g. by replacing shares and financial instruments that are inconsistent with the strategy.

How NOVIS Sustainability Insurance Fund Invests

In terms of composition, the Fund mainly invests indirectly in investment funds that follow UCITS regulations. Regulations set out that the share of these indirect investments must cover at least 80% of the assets. The remainder can be invested directly in financial instruments such as shares, bonds, or bank deposits.

In general, the proportion of the Fund’s investments used to achieve sustainable investment objectives is 90%, with a mandatory minimum limit of 80%. This leaves 10-20% that do not pursue the promotion of environmental or social characteristics but have additional purposes, such as risk mitigation or maintaining liquidity, e.g. bank deposits. The selection of banks, in this case, is made without considering ESG criteria.

As far as performance is concerned, the Fund has performed positively since its launch in 2019.

Even in the year of COVID, the Fund proved resilient to the volatility experienced in international financial markets. However, it should be remembered that historical data is in no way predictive of future returns.

Advances in medicine and an increased focus on well-being have led to a steady increase in life expectancy. The aging of the population, however, poses new challenges for public welfare, which may require support from the insurance and financial world.

An increasingly aging continent: according to forecasts, the proportion of people over 80 in the EU 27 is projected to be 2.5 times higher in 2100 than in 2019, rising from 5.8 percent of the current population to 14.6 percent.

The increase in life expectancy is due to a variety of factors: from medical advances to public health preventive measures such as screening to the increased culture of wellness that leads people to engage in more physical activity throughout their lives, reducing risk factors for many diseases.

Longevity is certainly good news, but it implies big changes both at the 'micro' level, for families, and at the 'macro' level, for states that have to manage the growing demand for services for the elderly.

The numbers: more and more elderly people in the EU27

The latest available data from Eurostat^[1] shows that as of 1 January 2019, out of 446.8 million people resident in the EU 27, the 0-14 age group constituted 15.2 percent of the population, those considered to be of working age (15-64), 64.6 percent, while the over 65s stood at 20.3 percent (+2.9 percentage points compared to 10 years earlier).

Obviously, the average figure hides profound differences between the different member states. The countries with the youngest people between 0 and 14 years of age are Ireland (20.5 %), France (18 %) and Sweden (17.8 %), while those where this age group is less numerous are Italy (13.2 %), Germany (13.6 %), Malta and Portugal (13.7 %).

In contrast, Italy and Greece are the states with the highest number of over 65s (22.8% and 22% respectively), while Ireland and Luxembourg have the lowest percentages (14.1% and 14.4%).

Beyond the differences between countries, overall the trend is very clear: 20.3 percent % (1 in 5) of the EU 27 population is composed of people aged 65 and over.

The aging of the population is a long-term trend that has been going on for several decades already throughout Europe. To understand the magnitude of the challenge that states are facing, one has to read this phenomenon in parallel with the fall in the birth rate and therefore, the progressive reduction in people of working age in relation to the total population.

This aspect is particularly relevant because public spending on care and pensions is generally supported by taxation and contributions paid by workers: if revenues fall as a result of demographic decline, and spending on the over 65s rises, the balance risks being upset.

The demographic outlook, in this sense, is not reassuring. According to Eurostat projections, in 2100, of the 416.1 million inhabitants of the EU 27, 31.3 percent will be over 65, up from 20.2 percent in 2019; the over 80s will be 15 percent, three times the current number. The decrease in the number of young people will increase the old-age dependency ratio, i.e. the ratio of the population aged 65 and over to the population of working age (15-64), multiplied by 100: in fact, it will rise from 31.4 percent in 2019 to 57.1 percent in 2100.

How to manage a society that is undergoing profound changes

For states, the growing aging population is the great unknown of the future, requiring a change of pace in the management of public welfare.

Within the large macro-category of the elderly, two groups should be distinguished: the over 65s of retirement age but still self-sufficient and the very old (over 80s).

The former are generally characterized by a still optimal state of health and a high degree of activity.
Given the decline in the number of young people of working age and the increase in pensions to be covered, it is not out of the question that states may try to incentivize these people to stay in work longer by rewarding those who delay retirement in order to keep public accounts in balance.

The system of calculating pensions using the contributory method, which is widely used in European states, is already going in this direction: since the final cheque depends on the contributions paid, the longer one works (and therefore pays contributions) the higher the pension amount will be. It cannot be ruled out that, in view of the demographic scenario we are facing, this mechanism may be further promoted in the coming decades.

The other big issue is healthcare. First and foremost, there will have to be a shift from a model in which the hospital is the heart of medical services to one in which the majority of treatment needs will be chronic diseases typical of old age, rather than acute ones.

For this, it is necessary for the technical and organizational response of the social and health system to adapt, avoiding hospitalization and giving preference to care in the community, aimed at prevention, rehabilitation, environmental facilities, and economic, social, and motivational support for the elderly and their families, in the context of their living situations.

Then there is the whole chapter on non-self-sufficiency, which mainly affects the very old, especially the over 80s. Among the various European states, there are profound differences in the care of these people, which is more informal, i.e. based on family ties, especially in the countries of Mediterranean Europe: in Italy, for example, 38 percent of children over 50 live less than one kilometer from their mother's home, against a European average of 24 percent ^[1].  However, this gap is bound to narrow as societal developments everywhere are leading to a shift of elderly care from the family to ad hoc facilities, which will have to be implemented.

In some countries, the dependent elderly care sector has already undergone profound national reforms, such as in Germany (1994), France (2002), Portugal and Spain (2006), and Austria (2011). The common thread of the reforms is the emphasis on the role of home-based services, on improving and simplifying access to the care network, and on focusing on the financial sustainability of the system as a whole. Probably, however, the growth in numbers will force further revisions.

Planning for aging

The management of old age is a challenge not only for the public system, which will have to cope with increased expenditure in the face of reduced revenue but also for the individuals concerned and families.

 
The prospect of receiving pensions that are much lower than earned income – with the contributory method of calculation one can receive about half of one's salary – presents the big question of how to meet expenses in old age, especially in the case of non-self-sufficiency.
Moreover, if staying at work for longer periods than the retirement age will be rewarded, the risk is that one will have to choose, at the threshold of retirement, whether to leave work earlier and accept a lower pension or to stay employed for longer in order to obtain higher pensions, while sacrificing the possibility of enjoying one's free time after a lifetime of work.

On the health front, longevity brings with it increased costs, especially in the case of non-self-sufficiency. Whether there is an established network of ad hoc facilities or the family takes care of their loved ones, the care costs can be very high and risk becoming unaffordable and risk becoming unsustainable with pension coverage alone.

Here, then, it becomes essential to efficiently plan the management of one's assets throughout one’s life with the aim of setting aside resources that are also useful to meet the expenses that inevitably arise in old age.

The insurance and the financial world can be a valuable support in this regard equipping oneself with long-term care solutions and managing savings from a pension perspective are solutions that allow the individual to build a safety net for the future. This also becomes a support for the state, which is relieved of a share of the costs, in a virtuous circle in which public and private supplement their services, to the benefit of the individual and the community.

^[1] https://welforum.it/legami-familiari-e-cura-degli-anziani-in-europa/

^[2] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Archive:Struttura_e_invecchiamento_della_popolazione&oldid=537274

NOVIS offers solutions that respond to emerging needs, which are constantly evolving after Covid, combining the need for protection with investment opportunities. 

The health emergency linked to the global spread of Covid-19 has had a disruptive impact on every sphere of social, economic, political, and financial life in Europe, as well as in everyday private life.
How will these transformations impact the definition of priorities that each person has to face when considering and building their life plans? How to make decisions consistent with one's goals in a scenario of overall uncertainty?
Knowing how to read changes, sense the evolution of people's needs and build innovative solutions is in the DNA of NOVIS, a European insurance company, which provides its experience and expertise by supporting families in managing their assets.

About NOVIS: history and vision

NOVIS is an international insurance company, headquartered in Bratislava, specializing in life insurance solutions that offer a wide range of long-term protection and investment opportunities through internal funds, diversified by theme, geographic location, and risk profile.

Founded in 2013, NOVIS has experienced rapid international expansion and significant financial growth in 11 European countries: Slovakia, Hungary, the Czech Republic, Germany, Austria, Finland, Italy, Poland, Lithuania, Sweden, and Iceland.  While maintaining its independence, NOVIS has been able to build fruitful partnerships with local distribution partners, selected to bring its insurance solutions to customers in the different countries where it operates.  

For NOVIS, one's aspiration to realize one's own life plan depends on having a safety net to activate during the most challenging times. 

The company is also aware, however, of how needs can change over the course of a lifetime.  That is why it has made the adaptive approach a strong point, building products that can
accompany the customer at every stage of his or her life.

This is made possible by a strong vocation for innovation, which has already led NOVIS to introduce elements of flexibility to adapt the contract to any changes that occur during the life cycle, evolving with customers' needs and expectations.

After Covid: NOVIS´ proposal between insurance and investment

After decades of substantial prosperity, the COVID pandemic and now the war in Ukraine have shaken Europe to its core.
Although with different nuances between countries, in general, the perception of greater vulnerability than in the past has grown, because even the younger generations, living in an environment characterized by lasting peace and medical-scientific progress, have found themselves living with the awareness that sudden events can radically change their existence.

Faced with this new sense of vulnerability, NOVIS, as an insurance operator with consolidated international experience, offers itself as a partner for families, individuals, and professionals who want to manage uncertainty and risk components that could at any time jeopardize life and work plans.

Through a range of comprehensive insurance covers (premature death, disability, life), NOVIS accompanies people in building a protection network for themselves and their families. The long-term time horizon makes it possible to anticipate the needs that may emerge over time, in view, for example, of additions to the family, the start of a new business or the end of one's working career, adjusting the content of the insurance contract from time to time.

Another effect of the pandemic before, and the war after, is the widespread European propensity to increase and immobilize savings rather than invest, in the face of uncertainty and volatility in the financial markets.  During the pandemic, the savings rate in Europe almost doubled, reaching peaks of 25% in the eurozone in 2020^[1] compared to the pre-covid standard of 13-14%.

However, setting aside money in unprofitable instruments may be an inefficient strategy for those who instead need to accumulate resources to meet unexpected expenses, supplement income or pensions, or obtain credit for their plans.

 For this reason, NOVIS also acts as a partner on the financial front, capable of responding to the different expectations and requirements of investors on returns through its internal funds, which, being suitably integrated and selected on the basis of the risk profile, represent the tool for intercepting investment opportunities emerging in the international financial markets.

Why a blog on insurance and financial issues?

After having experimented with the launch of a blog for Italy, NOVIS decided to open a communication channel aimed at customers, investors, and intermediaries in all European countries where it operates, as well as anyone who wants to learn more about insurance and financial issues.
 
The blog represents an immediate and easily accessible channel in which NOVIS wants to tell its story, illustrating its philosophy and keeping readers up to date on its new products. In addition, through articles dedicated to current affairs, financial education, and in-depth analysis of aspects of the insurance and financial world, the company offers a space to report and comment on current news in the insurance and financial sector, understand the impact of major global phenomena, and understand technical aspects of how policies and investments work.

The ultimate goal of the blog is to contribute to the growth of greater insurance and financial culture so that everyone can have the tools to interpret the news and major global changes that may affect the management of their assets.

An educational commitment that NOVIS makes available to everyone, in the conviction that correct and complete information that is accessible and clear, can lead to making conscious decisions in one's own and the community's interest, in the face of the uncertain international scenario.

^[1] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Quarterly_sector_accounts_-_households#:~:text=The%20household%20saving%20rate%20in,the%20third%20quarter%20of%202021.

Most policies, such as life insurance, are not compulsory. However, in recent decades, states have tried to incentivize their subscription as an instrument that complements public welfare and protects both the beneficiary and society.

In October 2021, the European Parliament approved new EU rules on vehicle insurance, including a ban on the suspension of policy payments during the period when a vehicle is not in use.

The aim is to strengthen the protection of victims of road accidents although it now remains to be seen whether the European Council will confirm the new rules, which, to be operational, will, in any case, have to be transposed by the Member States into their legal systems.

If the text were to remain unchanged, this would in fact lead to a strengthening of the motor insurance obligation. But why is it that for some insurances, such as motor vehicle insurance, there is an obligation, while others, such as life insurance, are not compulsory?

Insurance: means of protection for the insured party

The decision to take out a policy is usually the result of two variables: the likelihood of a loss occurring and the extent of the loss.

The greater the possibility of the damaging event occurring and the higher the price to be paid, the more interest there will be, on the part of those involved, to protect themselves with a form of insurance.

The increase in life insurance policies after COVID, for example, can also be explained as an effect of a greater sense of vulnerability, which is leading people to choose to protect themselves and their families.

As far as the use of motor vehicles is concerned, the probability of an accident is unfortunately high, and the consequences can be very serious. In 2021, according to the State Police budget, 64,162 accidents were recorded in Italy, for example, 26.7 percent more than in 2020^[1]: an average of 175 per day. The consequences were in many cases fatal, with 1,313 people killed, 14% more than in 2020, and 37,269 injured (25.7% more in one year).

Accidents are 'highly probable and seriously damaging events' because a car accident certainly has major impacts and, unfortunately, a high probability of occurrence. This in itself, however, would not justify the obligation imposed by states, were it not for the fact that there is another element to consider: the potential involvement of third parties.

States, in fact, tend to protect victims of damage caused by others, through civil liability, whereby whoever causes an injury to a third party must compensate the victim, commensurate with the damage caused.

This principle clashes, however, with the actual ability of the perpetrator to pay compensation, which, in the case of traffic accidents, can be very high. In the event of insolvency, the injured party would in fact have no redress.

This is the background to compulsory third-party liability (TPL) motor vehicle insurance, which provides the greatest possible protection for those who have suffered damage. Thus, one also understands the new rule laid down by Europe on the prohibition of suspending the payment of third-party motor insurance when one is not using the vehicle. Indeed, it cannot be ruled out that the owners will use it anyway, so that in the event of an accident, without insurance cover, the principle of third-party protection would be undermined. 

Not only that: with compulsory third-party motor liability there is also an attempt to protect the party who caused the damage, who would be in great difficulty should he be called upon to pay a maxi-claim that would leave him without income. Again, the state has an interest in this not happening, because it would become a burden on public welfare.

Life Insurance: not compulsory, but strongly incentivized

If motor third-party liability is the most 'famous' compulsory policy, there are also others that must necessarily be taken out, again based on the same logic: this is the case with policies linked to the risk of accident, such as those for housewives, or professional policies in certain work areas.

There is, however, no specific obligation on life insurance policies, which protect the relatives or beneficiaries designated by the policyholder in the event of the policyholder's premature death.

The first reason is related to the variability of the elements that characterize this specific situation. While for car accidents there are well-established data on the frequency and cost of damage, in the case of life insurance policies each situation is almost a case in itself. 

It is therefore up to the individual to assess whether it is worthwhile to prevent difficulties with a life insurance policy, while it is very difficult to establish a common rule justifying the compulsory nature of life insurance.

The second reason for the absence of obligation is that, in any case, a public welfare network exists to provide for the most fragile people. Italy, for example, is a country that chronically has a low rate of forms of insurance, from life to non-life, because the protection offered by the state in the past has always been very broad.

According to Ania data, in 2019 only 6% of Italians were insured against premature death, 24% against accidents with very limited coverage, 4% had protection against illness, and only 0.5% against the risk of non-self-sufficiency^[1].

However, this trend is changing, not only as a result of COVID but also because the public welfare system has been progressively reduced in order to contain expenditure and comply with the budgetary burdens set by Europe.

Although there is no obligation for life insurance policies, states have always encouraged their adoption.

Italy has provided, for example, incentives on the fiscal and civil law front to facilitate the take-up of life insurance policies, which will increasingly assume a social value as well, because they can help meet costs (medical expenses, income support) that would otherwise fall on the individual or the community. 

It cannot be ruled out that, by virtue of the recognized social role of insurance, further facilitations may be envisaged to encourage the widespread use of these instruments, both in terms of their ability to protect and channel investments supporting the transition towards sustainability.

^[1] https://www.ilsole24ore.com/art/italiani-fanalino-coda-la-stipula-assicurazioni-ACJVLOI

^[2] https://www.ilsole24ore.com/art/sicurezza-stradale-2021-1238-incidenti-mortali-15percento-1313-vittime-AEZyIl5

After Covid, the world faces a phase of uncertainty, accentuated by the war in Ukraine. The environmental situation and growing social inequalities are of concern. As institutional investors, insurance companies play a central role in mitigating new risks.

If one were to point to a common thread between the events of the last decade, from the great financial crisis of 2008 to the awareness of global warming, Covid and now the war in Ukraine, one could identify it in the interrelationship that globalization has brought with it.
Strong interdependence, first and foremost economic, means that any major event transcends geographical boundaries and involves all or a large part of the global community.

In such a system, even actions that have a positive impact have beneficial repercussions on the whole system. In this sense, there is a growing awareness that everyone can do their part and be jointly responsible for the good of the planet and society.

This aspect is especially evident when talking about the environment because it is now a shared idea that its protection also depends on the daily actions that each person can put in place. Compared to the past, when everyone focused only on their own business and on maximizing their results, we are facing a revolution that affects the financial insurance world.

In pursuit of their return objectives, investors may choose to direct large flows of economic resources towards assets designed to generate an impact (positive or negative) on the environment and society. For this reason, both 'retail' and institutional investors such as insurance companies are becoming increasingly important in society, because of their ability to contribute to a more sustainable future.

Sustainable finance - a great achievement after environmental warnings

The idea that finance can have an impact even beyond the objectives of the individual investor is not new, but examples can be found as far back as the 18th century, when especially the stricter currents of Protestantism excluded activities related to the use of slaves or the production of arms, tobacco, gambling from their investments.

A new impetus came in the 1960s–1970s, when pressure began to grow in the United States on those who invested in or supported the conflict in Vietnam. Until the 1990s, however, sustainable finance remained a niche phenomenon closely linked to specific campaigns or movements (arms, tobacco).

In the 1990s, and even more so in the last decade, the trend has clearly reversed, with the financial world being invited by the highest echelons of institutions to play a key role in implementing sustainable development policies. 

The great alarm raised by scientists in the face of global warming has led the European Commission to officially call upon the financial sector to support institutions in the difficult but necessary task of reducing the effects of the climate crisis^[1].  With the EU Green Deal of 2019 (to name one of the most significant commitments), Europe set itself the target of zero emissions by 2050. This implies a massive energy transition plan and a paradigm shift in the traditional production model.

To support this change, the European Commission itself has recognised that the funds that states can put in place are not enough, but that the involvement of private investors is also necessary, within a framework of clear and transparent rules. The European regulatory process has led to some measures within this context, such as: the Sustainable Finance Disclosure Regulation(SFDR)^[2], a set of rules to make the sustainability profile of funds more comparable and easier for investors to understand; the Non-Financial Reporting Directive(NFRD)^[3], aimed at harmonising the disclosure of sustainability information by companies, for the benefit of comparability and reliability of information available to financial operators and investors; and the European taxonomy which details the economic activities that contribute to the achievement of the Union's environmental objectives.

The creation of a regulatory framework with common rules is intended to strengthen the role of investment as a means to achieve European sustainability goals as well. This is a change of pace that we could call momentous, because the importance of the role of the investor is recognised, which will be increasingly accentuated after Covid and, presumably, in the post-war phase.

Climate and social inequalities: what the financial world can do

According to the World Economic Forum's Global Risks Report 2022^[1], which surveyed 1,000 experts globally, climate change and the economic and social inequalitiestriggered by the Covid pandemic are the main threats the world will face in the near future.

The uneven economic recovery, further undermined by the economic (as well as humanitarian) effects of the war in Ukraine, risks accentuating social inequalities, creating inequality between countries and within the societies of each individual state. According to WEF calculations, by 2024, developing economies (excluding China) will have fallen 5.5% below the GDP growth expected before the pandemic, while advanced economies will have exceeded it by 0.9%, widening the global income gap. This could fuel geopolitical tensions, increase the pressure of migration flows, and create a climate of uncertainty that could undermine growth and stability.

On the environmental front, experts estimate that failure to act on climate change could reduce global GDP by one-sixth: an increasingly real risk because, as yet, the commitments made at COP26 are still insufficient to limit global warming to 1.5 °C.

In this scenario, insurance companies can make their contribution.

As emphasised by Bianca Maria Farina^[2], president of ANIA (the Italian National Association of Insurance Companies), the insurance sector 'is aware that it plays a leading role in economic growth and in a sustainable transition, in its broadest sense, not only environmental but also social and financial. This, especially with a view to overcoming the health crisis that leaves no one behind and reduces the objective inequalities that have been created for families and businesses as a result of the pandemic'.

As institutional investors, companies can influence sustainable development by directing investments towards assets that have a positive impact.

As Farina pointed out, 'the global insurance industry, with more than USD 30 trillion in assets under management, has the ability and interest to invest in sustainable, long-term assets. It can therefore help finance the transition to zero-emission, resource-efficient and more sustainable economies'.

Various strategies can be used to achieve this: exclude funds and assets with a negative impact from the investment portfolio, choose companies that directly engage in activities with a positive impact, directly promote all those projects that respect the ESG criteria.

The other way to contribute to positive change is to deploy expertise in the area of transition risk protection and provide protection instruments that complement public welfare thus helping to maintain a cohesive society where there is no risk of inequalities increasing instability.

Certainly, the profound transformations of recent years have led to awareness of the role that the financial insurance world can play at a global level, including socially.

^[1] https://www.weforum.org/reports/global-risks-report-2022

^[2] https://www.ania.it/documents/35135/132329/Insurance+Summit+-+Relazione+Presidente+ANIA+Farina.pdf/4b2b3837-765a-c74c-1d14-23f47629cf58?t=1634815195292 

^[3] https://www.consob.it/documents/46180/46181/fs_1.pdf/93c19583-f2cf-446a-81ef-1ffc1f333b47

^[4] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32019R2088

 https://eur-lex.europa.eu/legal-content/IT/TXT/?uri=celex%3A32014L0095