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Insurers Deserve Customization, Too

Insurers are not homogeneous in their asset management strategies and need advanced data solutions for complex investing.

Insurers make up one of the largest asset owner categories – trailing only pension funds – with their assets comprising 15% of all assets under management globally.1 As such a large group of institutional investors, they are certainly not homogeneous in their investment strategies.

While traditionally insurance investment portfolios have been heavily allocated to lower risk fixed income strategies, many insurers in recent years have opted to invest in private assets and derivatives as they seek yield in low interest rate environments.

These increasingly differentiated approaches have left insurers needing a way to account for their portfolios to gain real and sophisticated insight into their holdings – something that only recently became possible with advanced data solutions for the insurance community.

Insurers are not homogeneous

Fixed income-heavy strategies are seen as a hallmark of insurance asset management. Most insurers maintained high allocations to fixed income for years, and many still do.  

But as the 2008 financial crisis hit, the U.S. Federal Reserve’s interest rate was pushed to near zero, climbing only as high as 2.5% until the COVID-19 pandemic hit, rates back down all over again.2

This perpetual low interest rate environment has spurred some insurers to venture away from high allocations to fixed income, placing their assets in higher-risk, higher-yield instruments such as private capital and derivatives.

At the same time, others have remained committed to primarily fixed income strategies, finding a way to create returns without taking on substantially more risk. According to Goldman Sachs Asset Management, 34% of insurers are planning to increase the overall risk in their portfolios – a significant portion that has grown over the years but is by no means the majority of the industry.3 Private equity, middle market corporate loans and infrastructure debt are growing in popularity with insurers, with 37%, 34% and 31% of insurers planning to increase their allocations to the asset classes respectively.3

The data shows that insurers are diversifying into new investment strategies and can no longer be put into one box, but what does this mean for their ability to assess their investment performance? Despite their varied allocations across asset classes, insurers require asset class agnostic data solutions and platforms. No matter what they choose to invest in, from U.S. Treasury bonds to private equity funds, insurers need to be able to rely on data that provide them a single, combined view of their full portfolios – something the industry has found hard to come by until the last several years.

Asset class agnostic solutions for insurers

As insurers have varied their strategies over the years, investment teams have become accustomed to using multiple disparate tools to manually combine data to get a full picture of their portfolio. This is because there simply was no resource on the market that could work with every asset class.

But as many insurers have increased their allocation to more complex assets outside of fixed income – particularly private investments which bring inherent valuation challenges – investment teams across the front, middle and back office have felt the need for a more broadly capable tool.

When it comes to back-office operations, many investment teams face the challenge of tracking complex portfolios on spreadsheets and the risk inherent in manual processes. By accessing the right data solution, insurers can gain streamlined views of their investment strategy via a single platform and a centralized investment book of record (IBOR).  When all data lives on a single IBOR, back-office teams are no longer conducting manual data entry and spreadsheet merging – practices that increase the risk for error. As the data is prepared for accounting processes, the books can be locked quicker with improved data integrity thanks to automated quality control checks.

Today’s advanced data solutions also allow for more robust and interactive reporting. With capabilities like detailed data analysis and customization, insurers can view and drill down into their data, benefitting front- and middle-office operations. Teams can more easily spot trends, risks and opportunities. They can quickly view the impact of portfolio changes and can access more frequent reporting, a crucial component of improved investment decisions. Gaining this type of transparency into a complex portfolio can be achieved with the right data solution and practices.

Insurers are diverse when it comes to their investment strategies, and this diversity continues to grow as more choose higher risk, higher yield investment products. As the industry continues its evolution, insurers can greatly benefit from data solutions that evolve with their changing strategies and their need to evaluate and report on more complex portfolios.

1 Boston Consulting Group “Global Asset Management 2020”, May 2020.
2 AP News, “Fed stresses its commitment to low rates as economy stumbles”, January 27 2021.
3 Goldman Sachs Asset Management, “Insurance Survey 2021”.

Christopher Dvorak portrait

Christopher Dvorak

Practice Executive, Asset Owners, Americas
Chris is responsible for the Insurance Solutions, Self-Managed Asset Owner (SMAO), Large Corporate West, and Correspondent Trust Services business segments within the Asset Owners Americas division at Northern Trust.

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