New insurance regulations in Europe are expected to create a windfall for investment consultants as insurers look for capital-efficient ways to manage assets that will need to be more closely linked to liabilities under the new rules.
In preparation for the potential growth, some firms such as Towers Watson & Co., Aon Corp., Russell Investments and PricewaterhouseCoopers International Ltd. have been building their insurance advisory teams over the past 12 to 18 months. The latest is P-Solve, which on Sept. 27 announced the acquisition of Meridian Consultancy to create P-Solve Meridian, which has £6 billion ($9.4 billion) in insurance assets under advisement.
“Similar to what has been happening in the pensions industry in the past several years — during which (plan sponsors) have been looking more closely at where the investment risks are and how they relate to the liabilities on the balance sheet — insurers are now moving in that direction,” said Alasdair Macdonald, senior investment consultant and head of the U.K. investment strategy team at Towers Watson in Reigate, England.
A key consideration under the set of insurance regulations — known as the Solvency II directive — is the capital requirements that could substantially differ depending on whether firms opt to build an internal model to assess their asset-liability profile more precisely, or follow a standard formula as an alternative, sources said. While large insurance companies usually have the necessary internal resources to manage their own modeling under Solvency II, small to midsize companies will likely need to outsource some or all of the expertise.
Solvency II was originally to become effective on Jan. 1, 2013, but the start date likely will be postponed at least until 2014, sources said.
“Not all insurers will move to building their own models, of course, but we believe a lot (of companies) in the industry will be doing so in the long term,” Mr. Macdonald said. “What gets measured gets managed, and this is where we see opportunities” for investment consultants.