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Insurers' outsourcing practices differ by market; China offers the highest chances for non-affiliated managers in near term
November 2019, SINGAPORE—Although insurers in Asia ex-Japan tend to give priority to affiliated asset managers, outsourcing opportunities have been increasing over the years, according to findings from Cerulli Associates' newly released report, Asia Insurance Industry 2019: Gearing Up for Regulatory Complexities.
Managers in the region deem insurance assets as important because of the stickiness of long-dated funds regardless of capital market movements. The top three factors in insurance outsourcing are knowledge transfer and strategic partnership with complementary resources, investment resources that are not available internally, and outstanding institutional performance track record, Cerulli’s proprietary survey shows.
However, while there may be opportunities for non-affiliated managers, these are uneven throughout the region. Chinese insurers favor partnerships with managers who possess insurance backgrounds or strong institutional track records. A recent survey by the Insurance Asset Management Association of China in 2018 showed that 72% of insurance investable assets in the country was outsourced to affiliated insurance asset management companies (IAMCs), 24% was managed by in-house insurers, 1% was managed by non-affiliated IAMCs, and 3% was managed by managers with no insurance background in 2018. Yet, the 3% alone translated to nearly RMB360 billion (US$52.4 billion), and some insurers could outsource to several such managers.
Therefore, it is not surprising that 100% of managers surveyed by Cerulli see China as the market with the most growth potential in terms of non-affiliated life insurance opportunities in Asia ex-Japan. “We expect more general account mandate opportunities sourced from China, with the country further liberalizing its insurance sector, fully removing the foreign ownership cap in 2020, and allowing more shareholdings of IAMCs,” said Ye Kangting, a research analyst with Cerulli Associates.
In Hong Kong and Singapore, multinational insurers, which have strong affiliations with asset management subsidiaries, usually dominate. Cerulli sees lower addressability in general account mandates compared to insurance-linked funds in these two markets. Korean and Taiwanese insurers also largely farm out their general account assets to affiliated managers, but the dependence of affiliated asset managers on insurers is less, compared to Hong Kong, Singapore, and China. “As insurers face more regulatory constraints, such as stricter risk-based capital requirements, new accounting standards, and limits imposed on overseas investments, more outsourcing demand for external managers stemming from the search for non-traditional investment capabilities can be expected,” said Ms. Ye.
In Southeast Asia, insurance penetration remains generally low. As such, domestic insurers, especially smaller ones, tend to manage general account assets in-house or with affiliates. Cerulli is of the opinion that the ILP segment could offer more fund wrapping potential, while general account offshore mandates emphasize more on global diversification.
NOTES TO EDITORS:
These findings and more are from global research and consulting firm Cerulli Associates’ The Cerulli Report―Asia Insurance Industry 2019 report, which analyzes Asia’s life insurance segment through an asset management lens. It sizes life insurance assets and premiums, and analyzes insurers’ asset allocations, investment practices, and outsourcing to affiliated and third-party asset managers. The report discusses both institutional (general account) and retail (separate account or investment-linked product) segments, and covers China, Taiwan, Hong Kong, Korea, Singapore, Thailand, Indonesia, and Malaysia. The report also details key aspects that influence insurers’ investments, such as regulations, asset-liability management, products, distribution landscapes and other key developments.
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