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Expertise sought to ease regulatory burden and improve investment returns
September 2019, LONDON - Driven by a need to streamline oversight and find new ways of generating yield, insurers in Europe are consolidating their outsourced investment assets and leveraging the expertise of asset managers to a greater extent than ever before, according to the latest issue of The Cerulli Edge—Global Edition.
Cerulli Associates, a global research and consulting firm, indicates that strategic partnerships are helping insurers to address increased oversight related to Solvency II and poor returns linked to low-yield assets in Europe, especially government bonds.
Cerulli’s 2019 insurance research found that 29.1% of European insurers expect to reduce the number of third-party asset managers they work with over the next 12 to 24 months, more than five times the 5.5% expecting an increase. Some 16.4% expect no change and 49.1% are unsure. Only large insurers—those with assets of more than €100 billion (US$114 billion)—are expecting an increase. Such insurers are better able to cope with the complex oversight associated with outsourcing to many asset managers.
“Although partnership-type engagement has been triggered by regulatory and economic pressures, the approach is most likely here to stay,” says Justina Deveikyte, associate director, European institutional research at Cerulli.
Deveikyte notes that partnerships differ from traditional mandates in that insurers demand a range of services, from governance and risk management to operations and bespoke product research.
“Simpler oversight and greater investment returns are the two key goals of strategic partnerships. We expect to see continued demand for riskier fixed-income and illiquid assets,” she adds.
Demonstrable insurance expertise is required to win business. Managers with dedicated insurance solutions teams will be more in demand and will likely be better able to cope with the intensified client management regime required of strategic partners.
“The best-placed managers are those able to broaden the scope of services they can provide beyond traditional insurance expertise, such as matching adjustment, and offer support across the entire investment process,” says Deveikyte.
Given the inflated mandates resulting from the consolidation of outsourced investment assets, it will likely be the largest managers that are best suited for strategic partnerships. However, although most new partnerships are likely to be around €2 billion to €3 billion in size, and upward of €4 billion for partnerships with holistic services, there is still opportunity to partner on a smaller scale with smaller insurers.
NOTES TO EDITORS:
These findings and more are from: The Cerulli Edge—Global Edition, September 2019 Issue.
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