Outsourcing remains in demand with insurers across Europe

Written by Adam Cadle

06/10/2021

European insurers’ outsourcing of investment management to non-affiliated asset managers continues to increase, albeit more slowly than in the past, according to Cerulli Associates.

The strategies being outsourced fall mainly under the umbrella of alternative investments, and Cerulli said it anticipates a reduction in the number of insurer-manager relationships in traditional asset classes.

“European insurers’ increasing appetite for private markets will lead them to appoint more external managers, especially in the Nordic, Swiss, and Italian insurance markets,” Justina Deveikyte, Cerulli’s director of European institutional research, said.

In 2020, 25% of the European insurers Cerulli surveyed expected to cut back on the number of external asset managers they worked with and just 6% planned to increase the number. This year’s survey found that only 11% of insurer respondents plan to reduce the number of external managers they work with over the next 12 to 24 months; 19% intend to expand their manager lineups.

Cerulli estimates that assets outsourced to third-party, non-affiliated managers stood at around €1.3trn (US$1.5 trn) at the end of 2019 - approximately 16% of industry total general account assets. “We expect outsourced assets to grow to more than €1.5trn by 2025,” Deveikyte stated.

Smaller European insurers manage most of their traditional fixed-income assets in-house. However, given the persistent low-interest-rate environment and the focus on cost efficiency, some have started outsourcing more of their core fixed-income assets. One-third (33%) of the European insurers indicated they will consider increasing the outsourcing of their core fixed-income strategies over the next three to five years.

In the US, insurers that were previously reluctant to outsource are engaging with investment consultants and forming strategic partnerships. As alternatives become a bigger part of the solution for insurers of various types and sizes in the US, Cerulli expects managers, analytics and service providers, and insurers to come together in diverse structures - including joint ventures, buyouts, mergers, and strategic partnerships.

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