In a push to deepen ties with the lucrative but demanding insurance industry, asset managers and consultants in the US are taking special steps to court insurers that are looking to outsource part of their investment portfolios.
Conning has become the latest investment management company to strengthen its ties with the sector, adding a pair of insurance chief investment officers to its board of directors. Northwestern Mutuals Ron Joelson and David Marks of CUNA Mutual a chief investment officer and an executive vice-president at their former firms bring deep experience and broad networks to Conning’s board, according to chief executive Woody Bradford.
For us as an investment management firm, but focused on the insurance management industry, we have wanted to add more insight and expertise to our board, he says.
That desire to deepen industry ties is something experts say is necessary for any asset manager that wants to win new business from the highly specialised, and highly regulated, global insurance industry. But for those who have the tools to succeed, the extra legwork can pay off in inflows from an industry that has recently grown its reliance on outsourced asset management.
The need for insurers to outsource increased significantly after the credit crisis, says David Holmes, partner at strategic consultancy Eager, Davis & Holmes. Though this has tailed off a little since 2009 and 2010, he adds, in recent years insurers have looked to outside managers who can help mitigate volatility and risk and overcome the low-yield environment.
Conning is not alone. Last autumn, Rocaton Investment Advisors hired Michael Luft as managing director for its insurance team. He joined the company from insurance house Ariel Holdings, where he was a senior vice-president overseeing investments.
There are also signs from the insurers themselves that outsourced asset management is here to stay. Late last year, for example, Aflac indicated it might hire outside managers to handle as much as 25 per cent of its $125bn investment portfolio, as well as adding more in-house investment staff.
However, insurance mandates are notoriously difficult to win, and pulling in those assets is not likely to become any easier. In its 2013 global insurance industry outlook, BlackRock forecast that low interest rates will force insurers to re-evaluate their business models and costs, which may mean reducing the number of outsourced managers they use.
Tempting as new inflows from insurance providers may be, Mr Holmes cautions that any asset manager looking to dive in should first do its homework. The distinct regulatory and business challenges insurance providers face represent a series of hurdles that many asset managers serving pensions and non-profit organisations are not immediately equipped to handle.
It’s not just a matter of thinking like them, but having the analytical support to determine proper asset allocation and be able to respond to changes in the financial markets and the insurers business market, he says. The operations standpoint is just as important as the asset management standpoint, if not more.
Asset managers need to have what Mr Holmes calls an insurance fluency, the ability to understand money management within the framework of a distinct regulatory environment as well as an understanding that investors risk tolerance can vary significantly with restrictions on what they can and cannot do.
In Conning’s case, the $91bn company is already focused solely on serving insurance providers, Mr Bradford says. Even so, he looks forward to the additional expertise Mr Joelson and Mr Marks will bring.
Just being affiliated with them and having their perspectives on investment strategies that are good for insurance companies, being able to leverage their networks and just being able to give me advice relevant to the industry, will be truly valuable to our company, Mr Bradford says.
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