European asset management mandates revealed by Insurance Risk Data

Channels: SAA/ALM, Managers, Outsourcing

Companies: State Street Bank, Trust Co, Eurovita Holding SpA, Meag, Munich Re, Generali Investments Europe, Generali Immobiliare, Generali, Allianz Global Investors, Pimco, Allianz, Axa Investment Managers, Alliance Bernstein, Axa

Greater transparency among EEA underwriters offer a unique glimpse into what and to whom insurers outsource their asset portfolio to, the only missing piece is the how much. David Walker reports

Almost 1,000 insurance undertakings across Europe have detailed significant relationships with asset managers, analysis by Insurance Risk Data can reveal.

This number, arrived at by careful examination of public documents from undertakings on the Insurance Risk Data database, equates to one important relationship per every 2.2 EEA underwriters. The full number of delegations will be much larger once unrecognised smaller allocations - to managers’ funds for example – are also accounted for.

However, the 940 readily visible relationships across the EEA still reveal which managers are picking up the most critically-important relationships with underwriters, which insurers are signing the most contracts, and where they are sealing them.

The full list is in a forthcoming report on European insurance asset management being published in November by Insurance Risk Data, the research and data arm of Insurance Asset Risk.

Phil Manley, research director at Insurance Risk Data, said: “A fair amount of insurance is proving unprofitable for its writers, as figures from Insurance Risk Data have previously revealed. The threat of underwriting losses, in turn, increases the pressure on asset managers chosen by the industry to perform. Without strong returns from them, in admittedly difficult investment markets and changeable economic conditions, many underwriters would fail to be profitable.

“Affiliated asset managers seem to continue to find favour with their parents, and using inhouse investment skills is often an insurer’s default choice for allocating its general account,” Manley added. “But Europe's underwriters also freely acknowledge that their inhouse managers cannot be the best at all asset classes. For that reason, external managers still have a critically important part to play in allocating the €8tr ($9.2tr) general account of EEA insurers and our research shows that opportunities beckon for asset managers that can identify willing insurers and offer distinct value in an increasingly competitive EEA market.”

The list of relationships makes for unprecedented transparency from insurers that have generally been tight-lipped over the size and recipients of mandates to run their general account investments.

Historically, staying silent has suited parties on both sides of the deal. In an age of greater transparency, such secrecy is increasingly difficult to sustain.

For at least 230 underwriters, Insurance Risk Data has ascertained that the significant relationship is with an inhouse asset manager, or another insurance entity within the group.

This is an arrangement that, admittedly, some practitioners may regard as delegation but not ‘true outsourcing’. However, third-party managers are also prominent in the mix.

Insurers spoke repeatedly of outsourcing to third-party managers only if an activity – not just asset management – could not be done as skilfully, safely, and cost-effectively outside their walls as within them.

In their outsourcing policies some insurers put limits on outsourcing where the monetary value at risk overstepped an internally-determined amount.

The description from ACE Europe Life plc of its rationale and method for outsourcing was fairly emblematic of its industry. It selected Pimco, State Street Bank and Trust Co for management and custody respectively, but not before conducting risk assessment, a cost benefit analysis and a due diligence exercise.

“Contractual arrangements are required to protect the company from financial, regulatory and reputational risk, for example by including minimum performance standards and identifying key indicators,” ACE added.

The industry also occasionally mentioned the business risk of losing skilled staff to external managers as a result of engaging with them.

Varying levels of disclosures

Insurers have taken very different paths to one another, in regards to what they reveal about delegation.

They are often still silent about the volume of assets they hand over. While many are now at least acknowledging that they do outsource asset management, they might not always say if that is to a third-party manager or inhouse.

Some just give the domicile of the manager they selected, from which can often be inferred if this might be an affiliate or not. For example, Axa Assistance France Assurances only said: “Outsourced activities are mainly in France and within the Axa Group.”

Others, however, are more open.

Allianz Private Krankenversicherungs-AG detailed which asset classes are invested in by each of five named managers with the giant Allianz complex.

Eurovita Holding SpA in Italy went one step further in providing insight into the terms of engagement with five named independent asset managers.

BNP Paribas’s mandate to run monies for a type of traditional Italian life insurance known as ‘Ramo I’, was subject to tacit renewal, as was the enlisting of Goldman Sachs Asset Management for assets backing Ramo I PIP policies.

The Italian underwriter reserved the right to terminate without notice work being done by 8a+ Investimenti SGR SpA, Consultinvest Asset Management SGR SpA and SiBanco Profilo SpA, for unit-linked products. A separate mandate for BlackRock was set to expire after three years, on 31 January 2018.

One UK insurer revealed how much Investec Wealth & Investment earns for the work it was doing for it.

And Ireland’s St. James’s Place International plc listed out 37 fund managers it was invested in during 2017, together with the nine jurisdictions those managers covered.

Without question, affiliated managers are the apples of their parents’ eyes.

Repeatedly captives scored mandates from many, if not all, of the subsidiaries in their parents’ groups.

In Finland for example, LähiTapiola Asset Management Ltd and LähiTapiola Kiinteistovaravarjoitus Oy each bagged 23 intra-group engagements, for liquid assets and real estate respectively, thanks to belonging to the LähiTapiola insurance group.

Meag, Munich Re’s child, Generali Investments Europe and Generali Immobiliare, spawned of Generali, Allianz Global Investors and Pimco, offspring of Allianz and Axa Investment Managers and Alliance Bernstein, of Axa Group, figure regularly on the long mandate roster.

One Luxembourg insurer seemed keen to fend off enquiries from interested third-party managers about prospects for picking up work. It said: “At year-end December 2017 the company was solely invested in cash. However, any investment portfolio that the company may hold in future periods will be managed by Hamblin Watsa Investment Counsel Ltd”.

The full list is contained in a forthcoming report, Insurance Asset Management Insight -- European opportunities 2018/19, being published in November by Insurance Risk Data, the research and data arm of Insurance Asset Risk.

It is a comprehensive report on the relationship between underwriters across the EEA and investment managers combining proprietary data across 130 charts, with country-by-country chapters across 150 pages of forward-looking text and analysis. It gives managers and insurers alike detailed and valuable insights into working together for mutual benefit. For more details contact: