Mind the Gap: How Vendors/Suppliers Can Meet Insurance Investment Management Operational Needs

by Jay Wolstenholme, November 25, 2014
Industry Trends
Global

Abstract

There are more than $100 trillion of investable assets on a worldwide global level; $20 trillion of those assets are insurance investment portfolios.

Insurance investment, with the charter of asset-liability management, has always been risk-averse, heavily weighted with risk-free sovereign bonds and high credit corporates. However, post-crisis insurance investment portfolio construction and modeling goals are strongly influenced by key business drivers such as increased regulatory pressures, the search for improved return, increased transparency into asset allocation, and the need to minimize operational costs.

Currently US, Japan, and UK insurance investment portfolios hold the majority of insurance investable assets. However, the rapid growth of middle class insurance needs in India, Asia-Pacific, and ASEAN countries will only further increase insurance portfolios and requirements for investment management.

“Globally, $20 trillion is held on the asset side of the balance sheet of insurance investment portfolios. Insurance investment managers are reallocating their portfolios into alternatives, hedge funds, and private equity searching for a higher return while minimizing risk and also being subject to greater regulation,” says Jay Wolstenholme, a senior analyst with Celent’s Securities & Investments practice and author of the report. “Middle and back office operations and systems need to be revamped to cope with these new demands. Maybe the best path is a complete lift-out.”

This report discusses market penetration and market participants. Celent also presents recommendations for vendors focusing on insurance investment management operations, as well as the best ways to meet current and future market demands and possible future disruptors.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

3

IIMF Foundational Facts

5

Global Insurance AuM by Insurance Type and Geography

6

Portfolio Asset Allocations by Insurance Type

9

 

Property & Casualty

9

 

Health

9

 

Life

10

 

Portfolios Allocations Consolidated

10

 

Global Insurance Regulatory Bodies

11

IIMF Unique Investment Requirements

13

 

Background

13

 

Risk-Based Capital Requirements

13

 

Generic SCR/RBC Example

13

 

Asset/Liability Management

15

Operational/System Requirements

16

 

Background

16

 

ALM Monitoring

16

 

Regulatory Reporting

16

 

Tax Reporting

16

Operational and Tax Disruptors and GAP Analysis

17

 

Regulatory Disruptors

17

 

Asset Allocation Disruptors

17

 

Risk Management and Analysis Disruptors

18

 

New Vendors Challenging the Status Quo, Established Vendors Revamping

19

 

Recommendations for Vendors

20

Conclusion

21

Leveraging Celent’s Expertise

23

 

Support for Financial Institutions

23

 

Support for Vendors

23

Related Celent Research

24

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