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How More Asset ˿Ƶ Are Getting Their Claws Into Insurance Portfolios

Insurance company assets outsourced to asset managers have doubled over the past decade, reaching $3.5 trillion.

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Insurance companies seeking better investment performance continue to outsource more of their general accounts to asset managers.

Investment firms managed $3.6 trillion in assets for insurance companies globally in 2023, up from $3.2 trillion in 2022 and more than double the $1.4 trillion they managed for them in 2014, according to the latest annual report on the topic by software company Clearwater Analytics. Those totals are influenced by market returns, the number and types of survey participants, and new insurance mandates. Nonetheless, Clearwater Analytics says there are signs of “vitality and growth” in the outsourcing marketplace.

For years, insurance companies have been steadily swapping public assets for private ones in their portfolios and they continue doing that today. Recently, insurers have been keen to invest more in private credit and lock in higher yields while interest rates remained higher. According to the Clearwater Analytics report, insurers’ allocations to private assets grew to $602 billion over the past two years, a 40 percent increase. Allocations to public asset classes were flat over the same period. Put another way: private asset classes gained 5 percent of total assets in 2024 at the expense of public securities.

During more than a decade of ultra-low interest rates, insurers looked beyond investment grade bonds (which still account for the majority of their portfolios), Sandeep Sahai, CEO at Clearwater Analytics, said.

“As investors diversify to increasingly complex asset types, they invest the time to understand these asset classes with the support of experts represented in our guide. We have seen increased alternative investments among the 800-plus insurance clients on the Clearwater platform and their money managers,” Sahai said.

Insurers are also outsourcing more than just their allocations to alternative investments. Out of the assets outsourced to third parties, 70 percent is public fixed income, 13 percent is private credit, 10 percent is stocks, and 7 percent is private equity and other alternative investments. If insurers want to outsource any part of their portfolio, they’ve never had as many choices either.

“The trend of insurers moving towards external asset management speaks volumes about the expertise and scale that external managers offer,” Steve Doire, a strategic advisor at Clearwater Analytics and owner of DCS Financial Consulting, said in the report. “The sheer variety of specialty asset managers now available to insurers is a testament to the evolution of the industry.”

Investment consultants were included in the Clearwater Analytics report for the first time, which showed they were advising on $913 billion in assets. It’s a material amount of assets, but the report explains that the total doesn’t tell the whole story. Like the asset managers, consultants are working more with insurers.

“Some insurers engage consultants long-term, while others leverage them on an adhoc basis — the latter may not be reflected in year-end AUA. We have seen the use of consultants increase in recent years. Much of the demand has been driven as more and more insurers extend their asset allocation into new asset classes,” the report says.

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