Half of US insurers outsource investment management

Written by Adam Cadle

23/07/2020

Fifty-one per cent (2,269) of the total number of US insurers (4,482) filing statements with the NAIC reported outsourcing investment management at year-end 2019.

Latest figures published by the NAIC show that Property & Casualty (P&C) companies represented 30% (1,323) of all reporting insurers and almost 60% of the total number of US insurers reporting outsourced investment management. Health companies were the second largest insurer type that outsourced investment management at 11% of all US insurers, or 22% of US insurers that reported outsourcing investment management to a non-affiliate. Life insurers were recorded at 9% of all insurers, or 18% of US insurers reporting outsourced investment management.

Small insurers, those with less than $250m in AUM, accounted for 64% of the total number of US insurers reporting outsourcing to an unaffiliated investment manager as of year-end 2019.

“Small insurers outsource to unaffiliated investment managers, as it may represent a more cost effective way to invest some or all of their assets,” the report said. “For example, an insurer with limited resources – i.e. staff or otherwise – may gain access to greater resources, such as investment expertise and capabilities, at a lower cost by hiring an unaffiliated manager. In addition, an insurer with a small asset base may not be able to cost-effectively replicate the skills or experience of an unaffiliated investment manager, particularly for specialty asset classes such as high-yield, real estate or private equity.”

Among large US insurers, or those with up to $10bn in AUM, life companies accounted for the majority of those that outsource to unaffiliated investment managers, at 70% of the total.

As of year-end 2019, 86% of US insurers that outsourced to an unaffiliated investment manager did so with a single investment manager for more than 10% of their assets (consistent with year-end 2018). Further, small insurers accounted for 70% of all US insurers that reported more than 10% of their assets managed by a single unaffiliated investment manager. Insurers with less than $500m in AUM accounted for 82% of US insurers that reported more than 10% of their assets managed by a single unaffiliated investment manager.

Within the small companies that outsourced at least 10% of their assets to a single investment manager, P&C companies accounted for the largest industry type, or 67% of small insurers—i.e., 924 out of 1,375— followed by health companies at 21%; i.e. 284 out of 1,375.

About 35% of all U.S. insurers reported outsourcing more than 50% of their assets to unaffiliated investment managers, compared to 32% at year-end 2018. Among the insurers that outsource, the percentage that did so for more than 50% of their assets increased to 68% of the total at year-end 2019, from 65% of total insurers that outsourced at year-end 2018.

Small insurers accounted for the largest number of insurers that outsourced investment management for more than 50% of their assets, at 72% of the total at year-end 2019, which was relatively consistent with year-end 2018 and the two years prior. Moreover, insurers with less than $500m in AUM accounted for 83% of US insurers that outsourced more than 50% of their assets to unaffiliated investment managers at year-end 2019, which was relatively consistent with year-end 2018. Within small insurers, P&C companies accounted for 69% of those that outsourced more than 50% of their assets to unaffiliated investment managers, followed by life companies at 12%.

The top three unaffiliated investment managers reported by US insurers in 2019 were unchanged from at least the last three years. BlackRock maintains the top listing, followed by NEAM and Conning.

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