As the world’s largest pension funds bring more investment
capabilities in house, asset managers are turning towards insurers as their new
saviors, two industry surveys indicate.
While pensions have been reducing
their reliance on third-party asset managers, ultra-low interest rates and
bond yields mean insurance companies have been diversifying into new asset
classes of which they have little knowledge internally.
Nearly two-thirds (63%) of insurers surveyed by Clear Path
Analysis were seeking to outsource some asset management. Fixed income,
infrastructure, and private equity were the asset classes most likely to be
outsourced, the survey showed. Within fixed income, corporate loans,
infrastructure debt, and residential mortgages are all of interest to various
groups of insurers.
The survey also found that 13% of continental European
insurers were seeking outsourced expertise across all assets, while just 5% of
UK-based insurers felt the same.
This year alone, asset managers including AXA, Aberdeen,
Columbia Threadneedle, JP Morgan, and Lombard Odier have hired in insurance
experts to target the European insurance market. More than half (57%) of
managers now have dedicated insurance teams, according to a separate survey by consultancy
Asset managers expect to grow their share of the insurance
market by roughly €1 trillion ($1.1 trillion) in the coming years, bringing their total assets
in the sector to €4.5 trillion, Prometeia reported.
to expectations, medium and small managers would experience higher growth rates
(13% to 14% a year), with an increasing role [for] non-captive managers—growing twice
as fast as insurance players,” the consultant wrote. “Significant
opportunities are seen also by alternative managers, which can ride the
tailwind generated by the low yield environment.”
As well as investment expertise, insurers are also seeking
risk management and strategic asset allocation advice, Prometeia said. Complying
with Solvency II rules—which include limits on the amount insurers can invest
in risky assets and a requirement to hold cash buffers—is also an area of
concern, the consultant added.
Last month, the International
Monetary Fund (IMF) warned that low interest rates threaten the solvency of
insurers and pension funds. Insurance companies in Germany and Japan, which
often offer guaranteed returns, are at risk of “an eroded asset-liability
management gap as policies continue to pay out a return higher than current
rates,” the IMF said. It highlighted a need for “high and robust standards” on
insurance capital—but warned that chances for consensus on an international
standard have been threatened by Brexit and the disinclination of the US
Federal Reserve to adopt such a standard.
Insurance Giants Giving Up on Hedge Funds? & IMF:
Low Rates Threaten Solvency of Pensions, Insurers