Asset managers for Europe's general account insurance market are reporting that they feel less pressure from fees compared to 2021, according to new research from Cerulli Associates.
The latest research was conducted during March and April of 2022 with 21 European insurance asset managers with a combined $3.6 trillion in European insurance assets under management.
Among those surveyed, only 10% reported that they see decreasing fees as a significant obstacle to growing their business, compared to 42% in 2021.
"Fees are linked to what asset managers are offering: In private markets, for example, the complexity and sophistication of the products provide space for higher fees," said Justina Deveikyte, director of institutional asset management research at Cerulli, in a news release.
Ms. Deveikyte added in the release that asset managers should look to alleviate fee pressure by focusing on asset classes that offer higher-margin business, such as alternatives, private assets, emerging market equity and emerging market debt, which she said are able to command higher fees due to the sophistication of the products involved.
Looking at individual asset classes, emerging markets equity and direct lending/senior debt could see the most significant relief from fee pressure; no manager respondents said they expect a significant increase in fee pressure in those asset classes and less than half expect a slight increase. For European investment-grade corporate bonds, however, 40% of respondents expect a significant increase in fees, while another 35% expect a slight increase.
When asked what managers' plans are to protect themselves against profit margin and revenue loss, 33% said they want to target client segments with less perceived fee pressure such as unit-linked insurers or reinsurers, and 10% of respondents said they want to target countries with less perceived fee pressure.
On a country level, asset managers in some European insurance markets reported declines in fee pressures, most notably in Italy, which Ms. Deveikyte said in the release was due to Italian insurers generally outsourcing only niche asset classes where prices are already high.
"In addition, they (Italian insurance asset managers) tend to choose collective investment funds instead of segregated mandates," Ms. Deveikyte added in an email. "There are typically no or only limited discounting within collective investment funds."
In the U.K., only 5% of respondents reported fee pressure as an obstacle to growth, compared to 25% the previous year. In Germany, those figures dropped to zero from 13% in the previous year's survey.
But those figures do not imply that every asset manager working in the European insurance market is feeling relief from fee pressures.
Cerulli's research noted pressure remains elevated in Denmark, Sweden and the Netherlands with 44% of respondents in the Netherlands reporting high to very high fee pressure, followed by Denmark at 38% and Sweden at 30%.
Overall, 60% of managers surveyed said they expect fee levels to remain the same over the next two years.
Ms. Deveikyte added in her email that the days of large fee decreases have likely passed, but because insurers are so focused on cost savings, fee discussions will remain a feature of the market for the foreseeable future.
"Although setting fees can be considered a science, negotiating fees for segregated mandates remains more of an art," she said. "Some managers will pursue a loss-leader approach when accumulating assets; others will aim to make their offerings more attractive by including more add-on services in order to keep fees at their existing levels. However, Cerulli believes that adding services to justify higher fees is not the best way to keep clients in the longer term."
In order to continue to secure revenue, Ms. Deveikyte said that European insurance asset managers could build strategic partnerships, which even though would likely result in a 10% to 20% discount, still helps the longevity of relationships and managers' ability to cross-sell into higher-margin asset classes. She also referenced growing demand for add-on services, such as ESG integration, which allows managers to charge higher fees or at least not reduce fees.
