Insurance companies turning to customised passive mandates

Written by Michael Griffiths

31/10/2019

DWS Group has announced a new research paper on how insurance companies, in their search for value, are increasingly turning to customised passive mandates rather than just ETFs.

The asset manager suggested it is well documented that institutional investors, including insurance companies, are increasingly utilising ETFs to take certain investment exposures.

DWS has also said, however, that the rapid rise of another form of passive investing is lesser well known – customised passive mandates – which have also started to find their place in the general accounts of insurers.

The new paper notes that traditionally, insurers have been active investors – usually matching their liability streams with corresponding assets and playing around the margin with security selection – as well as asset allocation to attain additional investment income.

Besides their liability structure, DWS has suggested insurance companies must also consider regulatory and accounting constraints in their investment decisions, and in order to comply with these constraints, insurers should require a high degree of customisation in their investments – especially in the fixed-income space.

The DWS paper has revealed passive investment products – which are often only associated with one-size-fits-all ETFs, or index funds – may not be the first choice for insurance companies to make any strategic investment.

DWS said it believes that by neglecting the value that an additional form of passive investing can bring, the insurance industry could miss an opportunity in customised passive mandates – which can offer a broad range of different investment outcomes, while also considering individual investment constraints such as exclusion lists, or target durations.

The research paper outlines some of the considerations that have led these insurers to embrace passive mandate investing, and summarises the advantages that ETFs have for insurance investors.

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