(March 18, 2014) — Insurers venturing into high yield, credit, and infrastructure debt has prompted many more of them to outsource their investments, according to research from Cerulli Associates.
Its inaugural European Insurance Industry 2014 report found that low interest rates and high guarantees on traditional insurance contracts are pushing European insurance companies to diversify their investment portfolios away from core fixed-income strategies.
However, many are uncomfortable with their knowledge level of these more esoteric products and are therefore turning to asset managers to help run the portfolio.
Asset managers keen to get in on the action were cautioned that simply being an expert in European credit wasn’t enough.
David Walker, associate director at Cerulli, said: “Asset managers need to show insurers they know their business model inside out. Having a team dedicated to the insurance business greatly helps in achieving this kind of credibility in front of the client.”
A total of 75% of managers based in Europe agreed that insurers are outsourcing more of their assets, and competition in the space is becoming more intense.
Insurer-affiliated managers were said to have an advantage, according to Cerulli, owing to their insurance background for managing their parent group assets. But it is difficult for them to win business from other insurers because of the perceived conflict of interest.
“Even the strong captive French and Italian markets are slowly opening up to third-party managers. Insurance companies increasingly want to be seen as independent by their board and their clients,” said Sabrina Lacampagne, an analyst at Cerulli and the main author of the report.
“They are also realising that, by sticking with their captive, they might miss out on some investment opportunities. This is where third-party managers can strike.”
The full report can be found here.
Some insurers continue to buck the trend however: Friends Life Investments (FLI), the investment arm for Friends Life’s life, pension, and general account assets, announced today it would bring £2.3 billion of Friends Life’s sterling fixed income assets in-house. The shift takes FLI’s total assets to £20 billion.
The £2.3 billion had previously been managed by F&C Asset Management. F&C has also lost the for £12.2 billion mandate for running Friends Life’s multi-asset and equity portfolios to Schroders.
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