Insurers turn to internal and external talent strategies to broaden their investment platforms.
Years of low returns from treasuries and investment grade bonds are leading insurance companies to expand their portfolios beyond those foundational investments into alternative investments, especially private market assets.
Insurers are increasingly willing to view asset management strategies as a central tool for enhancing profitability. This broadening of insurer risk and liquidity exposures across a wide range of assets, including private equity, private real estate, direct lending, and infrastructure assets, has been underway for a few years.
Insurer exposure to those riskier assets increased by 3.3% during 2018, according to the National Association of Insurance Commissioners, while assets outsourced to unaffiliated managers for investment in hedge funds, private equity, and real estate increased by 9%. Both trends have significant implications, for the companies themselves, as well as the sector.
The challenge for insurers, of course, is that while private debt, bank loans, structured finance, and commercial real estate debt and equity have the potential to generate higher returns, expertise in those asset classes is typically not resident among insurance company asset management teams. Additionally, sector regulation applies capital efficiency standards to insurers, which means that any assets managed for insurers must also comply with overall portfolio efficiency targets. This standard for insurers is unique in the asset management sector, which potentially limits the population of qualified asset managers for insurer needs.
While pension funds, college endowments, family offices, and other institutional investors seeking greater returns have already beaten a steady path into private market assets, insurers are later to the market, thanks to regulatory limits for exposure to these asset classes. Insurers must balance their entries into higher yield assets with their obligation to prudent management and mitigation of risk.
Download our latest paper for a look how insurers are employing talent strategies as they turn to alternative investments.