16 March 2016
Over the last 18 months, a number of our clients have expressed an interest in building their Insurance client groups. In this short note, we consider the specific opportunity and factors for success that Asset Managers must navigate, as well as their implications from a human capital perspective.
According to a survey of 248 Insurance Companies by the Economist Intelligence Unit, Global Insurance AUM is estimated at US $6.5trn. Unsurprisingly, given the size of the market, Asset Managers have redoubled their interest in a client base with perceived untapped potential.
The Regulatory Context
Following the global financial crisis, increased regulatory capital requirements have forced both Banks and Insurers to consider liquidity and potential balance sheet risk. Impacted by becoming Solvency II compliant, Insurers are increasingly turning to Asset Managers to help manage pressure on liability valuations and the consequent risk-based capital requirements. The Macro Economic backdrop of depressed interest rate yields and market volatility has created an increased premium on alpha generation alongside liability management (ALM).
Highlighted below are some of the key challenges faced by Insurers as well as some of the designated responses and asset management solutions to date.
What do Asset Management firms needs in order to add value to their Insurance clients?
Some factors include:
Through speaking with and assessing successful business franchises and the professionals who drive them, we have identified the following leadership and business factors as critical for success.
Talent for specific Insurance units has come from a range of areas including other asset managers, insurers themselves and also Investment Banks.
Many banks have withdrawn or are withdrawing from this market as sell side revenues are increasingly strained. Insurance Solutions teams, Cross Asset Class specialists as well as Insurance Sales specialists within Capital Markets units are all worthy of consideration. Providing there is a sound cultural fit, sell side compensation has been depressed meaning that potential hires are more achievable than was previously the case.
Standalone ‘Insurance Solutions’ units able to leverage firm wide capabilities are vital for long term success. Insurance experience, scale and focus – Insurance owned asset managers or those firms with a strong pedigree and existing track record in this market have continued to grow their presence.
Depending on the level of technical competency required, Heads of Asset Allocation, LDI Structurers and in some cases Chief Investment Officers can all be explored. Assessing the commercial competence and cultural fit of this community is a key selection criterion.
As regulation continues to impact and with interest rates remaining at historic lows, the opportunity for firms to partner with Insurers on a long term basis appears to grow. With a well-considered strategic plan and the right talent, ‘Insurance Solutions’ units will continue to play an increasingly important role for both Insurers and the Asset Managers they represent.