Survey shows 38% of insurers to expand use of external managers

Thirty-eight percent of insurance companies plan to increase their reliance on external money managers over the next two years, signaling modest growth in insurance outsourcing through 2015, according to a survey by David Holmes, founder of the Insurance Asset Outsourcing Exchange.

More than half of insurers, 55%, say they will stay the same; 6% said they will decrease and 1% didn't know, Mr. Holmes said.

The survey of 103 insurance firms by Mr. Holmes, a partner at money management consulting firm Eager, Davis & Holmes, also showed that 85% expressed “high satisfaction” with their current external managers.

In an interview, Mr. Holmes said that while external management of insurance assets will continue at an average annual growth rate of 12% a year for the next three years, it will be below the 17% annual average growth rate in 2009, 2010 and 2011.

Externally managed insurance company assets grew to $866 billion at the end of 2011 from $570 billion as of the end of 2008, the last time the survey was done, Mr. Holmes said, as insurers sought the expertise of outside money managers following the 2008-2009 financial crisis.

Mr. Holmes said challenges to the acceptance of insurance asset outsourcing remain. He said a key barrier, voiced by 50% of “less satisfied” insurers, is the challenge of evaluating external manager performance. Overall, 15% were “less satisfied.”

“Most insurance portfolios are constrained by business needs, regulatory requirements and risk tolerance,” Mr. Holmes said. “Straight comparisons of an investment manager's performance to market benchmarks or other investment managers' performance composites are usually misleading.”