Opportunities arising for asset managers as insurers shift into unfamiliar fixed income asset classes

Written by Adam Cadle

01/09/2022

Insurers in Europe are exploring fixed income asset classes in which they generally have little experience, thereby creating outsourcing opportunities for external asset managers, according to latest research published by Cerulli.

Cerulli said 52% of insurers across Europe plan to increase their use of external asset managers for their allocations to public fixed income—non-investment grade. In addition, 47% are considering making greater use of external managers for their allocations to private fixed income.

“Our research shows that subordinated/mezzanine debt, emerging market fixed income, and commercial real estate debt are where insurers are most likely to outsource new investments to external managers,” Cerulli managing director, Europe, André Schnurrenberger, said.

“Asset managers that can provide the know-how and experience needed to manage more specialised fixed-income investments can expect to see increased demand from insurers.”

Cerulli has estimated that general account insurance assets outsourced to third-party, non-affiliated managers stood at around €1.5trn at the end of 2021, accounting for 16.9% of total general account assets. This represents growth in outsourced assets of 4.1% year on year, outstripping the 3.1% growth in total European general account insurance assets. Cerulli said it expects outsourced assets to grow to almost €1.7trn by 2026, with the addressability rate increasing to 17.5%.

The research company’s assessment of the addressability of selected European insurance markets based on its proprietary methodology has suggested that the German insurance market continues to rank highest in terms of nominal addressable assets, at €379.6bn, and third in terms of overall addressability rate, with one of every four euros in the market outsourced to an external asset manager. The UK is Europe’s second-biggest addressable market by total addressable assets, which reached €273.6bn in 2020. The addressability rate is 21.9%. The nominal volume of general account insurance investments outsourced to external managers in the UK grew by 5.2% in 2020. Cerulli expects they will grow to €314.9bn by 2026, with an addressability rate of 22.8%.

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