Insurers burdened by managing investments, seeks third-party aid

Life insurers outsource less frequently than P&C or health insurers.

Insurers are increasingly turning to third-party asset managers to handle their investment portfolios, according to a Conning insight. This trend is primarily driven by cost-saving measures and the need for specialised expertise. 

Insurers, particularly those with smaller investment portfolios, find that outsourcing allows them to reduce expenses associated with in-house investment operations. Conning’s “Unlocking Performance: The Rise of Third-Party Managers in Insurer Portfolios” report highlights that life insurers outsource less frequently than property & casualty or health insurers due to their higher integration of asset and liability management.

It also notes that insurers are now seeking more than just competitive returns from asset managers. 

They demand customised strategies that offer capital-efficient structures, helping them diversify their portfolios whilst freeing up resources for other business capabilities. This shift has led to a growing preference for asset managers who can act as business partners, providing tailored solutions rather than standard investment management.

Data shows that insurers have increased their allocations to alternative assets over the past five years, driven by the prolonged low-interest-rate environment. 

These alternative investments include real estate, collateralised loan obligations, and private placements, which require specific expertise that smaller insurers often lack in-house.

A case study in the report demonstrates the potential benefits of outsourcing for a property & casualty insurer with a $550m portfolio.

By expanding their investment universe to include alternative assets managed by external firms, the insurer could achieve higher returns with lower risk.

In conclusion, outsourcing offers insurers access to specialised skills and diversified investment strategies that may be too costly to develop internally, particularly for smaller firms. 

This trend is expected to continue as insurers look for ways to optimise their investment programs and achieve better performance.