Growing number of US insurers outsourcing investment management

Written by Adam Cadle

27/02/2024

An increasing number of US insurers are relying on outside asset managers to handle a portion of their investment portfolios, according to AM Best.

AM Best has noted that the percentage of US life/health insurers using investment managers for more than 10% of their invested assets has risen steadily, climbing to 40% in 2022, from 32% in 2016. Around half of all US life/annuity insurers use an unaffiliated investment manager that is granted investment decision-making authority within agreed upon guidelines.

The uptick comes on the heels of a persistently low interest rate environment that spanned roughly a decade, AM Best stated, leading some companies to pursue higher yields apart from those available through traditional fixed income investments.

“Alternative investments generally require more specialised investment management skills and are typically outsourced to asset managers specialising in such investment opportunities,” Jason Hopper, associate director, AM Best, said.

“The significant increase in private credit investing by the insurance industry requires additional skills not always present in many smaller to medium-sized to smaller carriers.”

According to AM Best, the percentage of insurers using unaffiliated investment managers to control more than 50% of invested assets in 2022 increased steadily, to 33.4%, from 26.8% in 2016. Companies of all sizes, and regardless of business lines, use unaffiliated investment managers, though the largest and smallest insurers comprise a smaller share of those that outsource more than 10% of invested assets.

US-domiciled life/health insurers reported the value of invested assets outsourced to their top 10 fund managers at more than $67.1bn as of year-end 2022. Twenty insurers account for nearly 70% of invested assets outsourced to fund managers in 2022.

BlackRock is the largest fund manager of the insurance industry managing around $8.8bn and over 13% of these assets outsourced by the industry.

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