Best’s Special Report: Growing Number of Life/Health Insurers Outsourcing Investment Management

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

In a new Best’s Special Report, AM Best notes that the percentage of 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. The report, based on annual regulatory filings and data, estimates that approximately half of all U.S. 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, leading some companies to pursue higher yields apart from those available through traditional fixed-income investments.

“Alternative investments generally require more specialized investment management skills and are typically outsourced to asset managers specializing in such investment opportunities,” said Jason Hopper, associate director, AM Best. “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 the report, 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. Smaller insurers may have a more limited infrastructure or lack the expertise or capabilities to cover diverse asset classes, making it more cost-effective to hire an outside investment manager than to build the skills and experience needed to keep the function in-house.

Among the report’s other findings:

• US-domiciled life/health insurers reported the value of invested assets outsourced to their top 10 fund managers at more than $67.1 billion, as of year-end 2022;
• Twenty insurers account for nearly 70% of invested assets outsourced to fund managers in 2022. This includes affiliated fund managers;
• Blackrock is the largest fund manager of the insurance industry, managing roughly $8.8 billion and over 13% of these assets outsourced by the insurance industry; it also the only fund manager that manages assets for more than 100 insurance companies.

AM Best is planning to widen the scope of this report in the future and include the broader U.S. insurance industry.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=340783.

To view a video with AM Best Associate Director Jason Hopper on this report, please visit http://www.ambest.com/v.asp?v=ambam324&AltSrc=182.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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