AM Best Report Highlights Rise in Insurer Outsourcing of Investment Management
A new AM Best report highlights the increasing trend among U.S. life and annuity (L/A) insurers to outsource investment management to third-party asset managers. This shift is driven by the demand for diversified asset class exposure and the presence of private equity and asset management firms investing in and managing assets for insurers, even without majority ownership. Analysis of 2024 NAIC data reveals a substantial rise in outsourcing: over 43% of life/health insurers now rely on a single external manager for at least 10% of their invested assets, an increase from 32% in 2016. Furthermore, 35.5% of insurers deploy multiple unaffiliated managers for over half of their portfolios, up from 26.8% eight years earlier.
The report underscores the investment expertise PE/AM firms bring to managing large portfolios, particularly in annuity companies, which offer stable cash flows. Many insurers pursue this route to remain competitive and generate adequate spread, as internal teams may lack the resources or expertise to manage complex or diverse asset portfolios. The growing collaboration between insurers and third-party managers signals a strategic industry shift towards specialized investment management to optimize asset performance.
AM Best’s report suggests that the trend towards outsourcing aligns with broader market dynamics, where private equity firms increasingly take positions in insurers and influence investment strategies. This development reflects changing risk management approaches and the quest for enhanced returns amid evolving regulatory and market conditions. The industry-wide adoption of external asset managers may also impact operational structures and regulatory compliance frameworks within insurance firms.
These insights are relevant for insurance professionals focusing on investment strategy, asset-liability management, and regulatory compliance. Understanding the benefits and challenges of outsourcing investments aids firms in navigating competitive pressures and complex capital markets. As insurers continue to adjust their investment approaches, monitoring third-party manager performance and alignment with company objectives becomes crucial for maintaining financial stability and regulatory adherence.