Insurance Investment Outsourcing Accelerates

(July 18, 2013) — European insurers are increasingly handing over their assets to third party managers, with €415 billion currently being managed externally, according to research from research house Spence Johnson.

The figure is still a small proportion of insurers’ overall assets—Spence Johnson estimated just 6.6% is managed today by third parties—but its survey of European insurers suggested that figure would increase to 8.9% or €784 billion by 2017.

The trend towards outsourcing insurers’ investment decisions presents an opportunity for fund managers: annual fee income for third party managers from insurance companies totalled €1.18 billion in 2012, according to the report, and is predicted to rise to €2.23 billion by 2017.

Corporate bonds generate the most fee income for insurance asset managers, bringing in more than €300 million a year today. That’s followed by equities, hedge funds, other alternatives, real estate, government bonds, and cash.

The report also found satellite asset classes, such as emerging market debt and infrastructure investments, are becoming more popular as insurers seek higher yielding assets and to improve their diversification.

When choosing an external asset manager, performance is the most important criteria for almost 80% of insurers, with fees and knowledge of the industry’s regulation and trends being cited by slightly more than 40%.

Client strategy, risk analytics, idea generation, and having a global presence deemed to be much less important.

Elsewhere in the report, asset allocation strategies were also illustrated, with a strong trend towards increasing their bond allocations as Solvency II approaches, with Norwegian insurers heading the pack.

There was also a shift from long-term debt to shorter-term debt, with more than half of the UK’s insurers saying they would favour short-term debt when the regulations come in.

In addition, many insurers planned to reduce their exposure to sovereign debt, with German insurers most likely to dump the asset.

Only Spanish insurers said they would maintain or increase their sovereign debt holdings, suggesting the money used from selling out of corporate debt would be used to fund their purchases.

The full report can be found here.