Insurance asset management outsourcing could be a ray of sunshine for investment managers in the current financial storm, according to industry analysts.
General account assets outsourced by insurers grew 11% in 2007, to a record $906 billion, according to Alex McCallum, editor of Insurance Asset Manager, Exeter, N.H.
Financial services consultant Patpatia & Associates, Berkeley, Calif., put the 2007 total of outsourced general account assets at $989 billion, up 9.8% from a year earlier, while money management consultant Eager, Davis & Holmes, Louisville, Ky., put the estimate at $906.46 billion, up 12.4%.
All three firms estimate that combined internally managed and outsourced U.S. insurance company assets total $6.8 trillion.
Mr. McCallum said preliminary numbers for the first half of 2008 show outsourcing of general account assets declined about 8%, likely because of the downturn in the value of the assets.
“That, by the way, is a highly commendable performance, considering what happened to the markets,” Mr. McCallum said. “At this time when markets have been dropping, these guys have managed to avoid a precipitous decline.”
During the first half of the year, the Russell 3000 stock index declined 11% and the Barclays Capital Aggregate bond index rose 1.1%.
The second half of 2008 might prove more difficult, he added.
It also could show a heightened awareness of risk avoidance, which is common in the insurance industry, Mr. McCallum said.
Sunny Patpatia, president of Patpatia & Associates, said by the end of 2007 about 14.4% of insurance assets industrywide, or $989 million, were run by external managers. And despite the credit crunch, he's heard anecdotally that interest in outsourcing has picked up in recent months.
“The credit crisis and the complexities of the markets have gotten business people focused on investments. Now the CEOs are saying, "What's in my portfolio?'” Mr. Patpatia noted.
Mr. McCallum said he believes appetites for new asset classes will diminish temporarily until money managers get a better sense of the post-crisis financial landscape. He said the volatile markets will prompt insurance companies to re-evaluate their investment strategies.
For 2007, Mr. McCallum's industrywide analysis shows a small drop in fixed income managed for insurance companies by external money managers, down 3.7 percentage points from 82.5% in 2006.