There's gold in them thar hills for money managers willing to mine the trillions of dollars in the general accounts of the insurance industry that might be moved to outside management.
According to Cerulli Associates Inc., Boston, insurance companies have been looking to boost returns in their general accounts, traditionally one of the most conservatively managed market sectors.
Cerulli estimated most insurance companies had almost all general account assets invested in U.S. fixed-income three years ago, with 70% of that in government securities and investment-grade securities. That proportion has dropped to about 50% of general account assets, as insurance companies have hired outside managers to add riskier assets classes.
Preliminary research from Cerulli estimates insurers have outsourced the management of about $350 billion to date of their $3 trillion in total general account assets. The firm projects a 17% annual growth in this trend.
But significant resources will be needed to overcome barriers such as the unusually low turnover of managers in the insurance industry. And, most new business remains concentrated among a group of about 25 vendors, almost none of them boutiques.
The technological commitment needed to manage insurance company assets also blocks smaller firms, which also often lack the higher end asset-liability modeling capability needed by most insurance clients.
Fee control also is a major issue, with insurers forcing asset managers to discount their already low institutional fees by more than 10% in many cases.