There is little doubt that Brexit will have an impact on insurers and how they manage investable assets, but do the feel they can male appropriate investment decisions on hard evidence with just over 10 months to ‘Brexit Day’? Recent research carried out for the annual Insurance Asset Management Summit appears to say ‘no’. But does it matter?

If there’s one point any portfolio manager on insurance assets will agree on, it’s the fact that scenario planning for a range of outcomes is at the essence of good asset management. The growing appetite for private markets, however, makes scenario planning and the potential need to hold higher levels of liquid assets even more difficult.

So, we asked insurers during our agenda research, ‘what are the most significant political, social and economic concerns you hold for setting a long-term investment plan?’.

1. The potential lurch to the left and right: politics has been dominated by populism and the rise of heightened personalities, stirring up emotions and setting the U.S., France, even the UK, on track to implement policies that could trigger sharp economic shifts. Deciding the relevant group of assets to allocate to and model likely risks is fraught with challenges.
2. Estimating where we are in the credit cycle: entering the right tranche of debt opportunities and disposing of those likely to be at the top of the curve has remained a consistent piece of feedback for a few years now. However, with many insurers becoming more comfortable with diversified and multi credit strategies, understanding the right mix is a top concern
3. Contagious behaviour: as old (in fact older!) than the Dutch tulip market bubble, insurers are aware that as reservation and conservatism flourishes into growing risk appetites, the potential to all be taking the same path may erode the opportunities faster than anticipated. How to predict other asset owner’s appetite, manage and moderate your own accordingly, will dictate those who prosper in spotting the right investment strategies before the crowds arrive.

Alongside the concerns of where to allocate are those of how to manage such operations, be that as an internal to insurer investment operations executive or Chief Operations Officer acting on behalf of a third-party manager. Our research again summarised the three main concerns, asking the questions of both internal and external to insurers operations executives, ‘what the major operational challenges in insurance asset management are today?’.

1. Undertaking due diligence when entering new asset classes: for many insurers, expansion of the portfolio beyond triple-A rated fixed income debt and high-grade, dividend paying stocks comes as a sizeable first for them. Developing the capabilities both as an insurer to correctly assess a manager’s competence, as well as for the recipient at the asset manager to be well set-up to handle such enquiries, is currently a development priority
2. Direct investing and core systems: much could be learnt from the banking sector on managing a portfolio of corporate loans, infrastructure debt and real asset investments, many insurers commented in research, due to banks requirement to heed to their own solvency regulation, Basel III. If insurers are to become the new lenders then infrastructure improvements, risk modelling and decision-making criteria’s will undergo an evolution.
3. Revolutionising portfolio risk modelling and examining cutting edge approaches to achieving optimal investment Solvency Capital Ratio scores: over the past three years we’ve seen a substantial growth in alternative fund managers offering new investment solutions to insurers keen to capture higher yields. The next 5 years will see this trend turbo changed as regulators work hard to get more money into the ‘real economy’ through clarifications and likely revisions of existing solvency regulations. Solvency III anyone?

Insurance, a typically slow-moving industry towards change, is right now being carefully watched as their mountain of available investable assets are put to work in corporate and residential linked loans, infrastructure, multi-credit opportunities and higher growth stocks, led by growing underlying sophistication of operational and risk technology.

The above are just a few of the key trends. Insurance asset management is on the move.

The Insurance Asset Management Summit is taking place on the 15th November. Registration is open only to representatives of insurers and regulators. To register click here.

Sponsors to the event, at this stage, include our Lead Summit Sponsor, Aberdeen Standard Investments, plus NN Investment Partners, Aon Hewitt and Neuberger Berman. To find out about becoming a Summit Sponsor, e-mail Noel Hillmann, Chief Executive Officer, at noelhillmann@clearpathanalysis.com or call +44 (0) 207 688 8511