Asset managers and the European insurance market: a 4.5 trillion euro challenge

 

Low interest rates are posing big challenges for the insurance industry, taking into account the impacts of Solvency II on the asset side of the balance sheet.
 
A new trend is emerging, as European insurers are increasingly opening to asset managers, both looking for sources of yields in ‘non core’/illiquid asset classes, not easily accessible by every player, and selecting asset managers as ‘partners’ on the whole portfolio (general account), able to speak the same language and provide the level of reporting needed.
 
Prometeia has launched a new survey dedicated to asset managers active in the European insurance sector, to shed light on how the industry is changing to capture this trend. The results include views expressed by 60 contributors, who manage in aggregate more than 22 trillion euro AuM worldwide and have operational structures in Europe.
 
The asset management industry is responding to this changing environment, investing in competences and tools to adapt the investment approach, to innovate products and to raise the quality of services: there is still a long way to go.

 

Highlights

  1. The European insurance market for asset managers is growing high-speed. While the market value today accounts for 3.6 trillion euro[1], management companies estimate to grow by 8% per annum for the next 3 years, reaching 4.5 trillion in 2019
  2. About 1 trillion Euro is expected to be invested through asset managers in the coming years. While 70% of the market is concentrated on few large players, there will be an increasing role of ‘non captive’ managers (growing twice as fast as insurance players). Germany, Italy and France are expected to contribute the most to the market growth
  3. An alternative approach to fixed income: investors’ interest is expected to be mainly focused on corporate/high yield (20%) and alternative fixed income (29%) – represented by bank loans, infrastructure and real estate debt. Liquid alternatives (9%) and multi-asset fixed income strategies (10%) are also expected to catch investors’ interest
  4. Is the asset management industry already fully equipped to capture this trend? About 57% of asset managers have already created dedicated teams to better serve insurance clients’ needs (>70% within insurance/banking groups vs. 32% within independent players)
  5. Solvency II optimized’ strategies are evolving: 60% of surveyed managers offer at least one ‘Solvency II friendly’ strategy, and an additional 15% are currently working on one. Being able to provide performance also in capital-adjusted terms will be key
  6. The differentiating factors for asset managers to provide value-added services to insurance companies are related to investment and execution first, followed by SCR optimization and strategic asset allocation. While meeting reporting standards is a pre-requisite, risk management and valuation capabilities are particularly important for alternative assets
  7. Improving insurance-related skills will likely be the main challenge ahead: asset managers will have to invest in resources, dedicated tools and methodologies, to master the peculiarities of the insurance business. The lack of insurance-specific skills among independent asset managers will be the main challenge to bridge the gap with asset managers already serving Group insurance companies


[1] Consolidating AuM of survey respondents with European insurance clients