According to credit ratings agency AM Best, a staggering number of insurers are relying on outside asset managers to handle a portion of their investment portfolios.
In a recent report released by the firm, it highlights that the percentage of life/health insurers using investment managers for more than 10% of their invested assets has risen steadily, rising to 40% in 2022, from 32% in 2016.
Best’s report, which is based on annual regulatory filings and data, estimates that approximately half of all US life/annuity insurers use an unaffiliated investment manager that is granted investment decision-making authority within agreed upon guidelines.
Moreover, the agency states that this rise comes on the heels of a persistently low interest rate environment that lasted roughly a decade, which ultimately caused for some companies to pursue higher yields apart from those available through traditional fixed-income investments.
Jason Hopper, associate director, AM Best, commented: “Alternative investments generally require more specialized investment management skills and are typically outsourced to asset managers specializing in such investment opportunities. 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.”
Meanwhile, Best also explained that the percentage of insurers using unaffiliated investment managers to control more than 50% of invested assets in 2022 increased robustly, to 33.4%, from 26.8% in 2016.
It is important to remember that organisations of all sizes use unaffiliated investment managers, however, the largest and smallest insurers comprise a smaller share of those that outsource more than 10% of invested assets.
Further, another key finding from Best shows that 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.
As well as this, 20 insurers reportedly account for nearly 70% of invested assets outsourced to fund managers in 2022. This includes affiliated fund managers.
Lastly, it was revealed that Blackrock sits as the largest fund manager of the insurance industry, managing roughly $8.8 billion and over 13% of these assets outsourced by the insurance industry.
Best also highlighted how it also the only fund manager that manages assets for more than 100 insurance companies.
