More insurers to outsource says Swiss Re

Insurance companies are increasingly turning to outsourcing of their asset management operations to manage risks and improve returns, according to Swiss Re.

At the end of 2001, global insurance assets totalled approximately $11.5 trillion, said Swiss Re, adding: “Managing these assets in the current climate of declining equity markets, low interest rates and record levels of corporate bond default is a significant challenge for the industry.”

Swiss Re, one of the world’s largest reinsurance groups, said that in response, insurance companies are increasingly turning to outside experts who offer specialist skills in asset management. Pressure on investment officers to manage operational risks and increased scrutiny from rating agencies is another factor.

Swiss Re estimates that US insurers employ third-party managers to oversee $300 billion of investments (from total investments of $3.9 trillion), while European insurers outsource around $140 billion of assets (from total investments of $4.5 trillion).

“In Europe, third-party asset management has a lower penetration than in the US,” said Swiss Re. “This is principally because European insurance asset managers must maintain a local presence, in some cases for legal reasons. This creates a cost barrier to entry, reducing competition between providers and strengthening the major European institutions who already have a foothold in the market.”