Asset Management North America Report


GLOBE-Net, October 11, 2013 -Complex regulation and increasing investment sophistication are challenging the adequacy of insurers’ operational oversight and resulting in this increased third-party custody.

As well, as the tenacious search for yield continues, there are signs that legacy back office systems are failing to manage compliance requirements, monitor risk management and report on investment performance to the appropriate appetite. 

“In a low interest rate environment you have to be conscious of the fact that it’s dangerous to chase yield that can lead you to taking risks that you don’t necessarily understand …”  Robert P. Torretti, Managing Director, Regional Investment Manager – Americas, Zurich Insurance Group 

This is the key conclusion of the ‘Insurance Asset Management, North America’ report, published by Clear Path Analysis.

Nicholas Liolis, Chief Investment Officer, Axa Equitable, argues the toss: “Insurance asset management is at an inflection point that presents a considerable learning opportunity. What brought us here is a “perfect storm” in our business environment.”

Insurers must turn regulation and risk into a new opportunity through effective asset management, the right technological tools and informed outsourcing. 

But what are the opportunities? 

Commentating on the trend towards more ambitious investments strategies David Sullivan, Insurance Practise Leader, Americas, Northern Trust, states: “A recent survey of chief information officers and chief financial officers of insurance companies reported 43% would increase their allocation to bank loans1, a significant increase from previous years and a trend potentially bringing significant operational impact.” 

Such change and sophistication will inevitably create operational burdens on insurers. According to Sullivan: “In the long-term, current systems of oversight, processing, reporting and administration may prove to be inadequate to meet the resulting challenges” 

He goes on to define a two phase move to outsourcing: “In the first phase, many investment firms decided to focus on investment and distribution issues, letting other firms deal with the challenges of supporting back- and middle-office systems for their equity and bond investments. In the second wave, investment firms have begun to outsource systems for derivatives, private equity and other complex securities.” 

In a Special Roundtable Report dealing with what strategies, tools and processes do insurers need to meet the increasing  demand for instantaneous risk reporting moderated by GLOBE-Net Editor, Frank Came,  Dr. Gary Hateld, Investment Actuary, Corporate Actuarial, Securian Financial Group and Thomas J. Merfeld, Chief Risk Officer, CUNA Mutual Group, discuss how the risk management market is adapting to the realities of climate change and extreme weather events,  which are very much on the minds  of investors.

Notes Hateld,”The emphasis on risk  management, especially on the board  level, is a trend that’s emerged over  the last 10 years. We saw a number  of fairly spectacular enterprise risk  management failures at the beginning  of the millennium with Enron and  WorldCom. Then as we moved into  the financial crisis, the need for solid  enterprise risk management and risk  governance became very apparent.” 

“Strong risk governance is going to  become a necessary, standard element  of doing business. Boards of directors  will play a part in risk management and  companies will have chief risk officers.  Increased governance over risk and risk  taking are positive developments, ” he added.

In this second wave much discussion has been had around the global bond universe. Commenting on this is Paul Forshaw, Head of Insurance Asset Management, Schroders, “The market value of the global index is 2.5 times that of the US and there are getting on for twice as many different credit issuers to choose from. This allows for the construction of more diversified and arguably more liquid portfolios {…} 

At the same time, a broader opportunity set means an increased ability to generate extra return through relative value trading. The result should be a higher Sharpe ratio.” 

But equally additional risks must remain managed as Forshaw states: “Investing in global fixed income exposes you to non-US duration exposure and therefore to changes in non-US interest rates that may not mirror those in the US. Other valuation inputs such as inflation rates and economic cycles may differ, and increasingly there are geo-political risks to consider, such as the European sovereign debt crisis” 

In such complex situations technology is crucial for enhanced investment and operational management, and as Ivan Matviak, Chief Executive Officer, Princeton Financial Systems, Head of Global Exchange Software Solutions Group, State Street, comments that “If you outsource it, you have to make sure that you have a knowledge base inside the company that has an understanding of the business operations that still understands the technology and can still service the business effectively.” 

Matviak expands: “What is really important is to have technology that is flexible and can handle the evolution in investment strategies fairly seamlessly whether you’re doing that in-house, using third party software or outsourcing. That flexibility is critical because you want to be able to handle new investment strategies in a way that’s cost effective.” 

Robert Absey, Senior Vice President, Head of Global Financial Institutions, AllianceBernstein, supports this stating that “on the investment side, technology is crucial. This is illustrated by the myriad of internal proprietary models we’ve developed, as well as optimization, prioritization, and surveillance tools used in the investment process. On the insurance specific side, we also use technology to help us on a variety of fronts such as with our Asset Liability Management (“ALM”) analysis, capital allocation projects, and pricing models.” 

To obtain a full copy of the Clear Path Analysis report on ‘Insurance Asset Management, North America’ and/or speak with one of the commentators please email or call +44 (0)20 7822 1818 or visit

About Clear Path Analysis

Clear Path Analysis is an impartial, independent publisher of high quality reports on pressing industry issues written by a cross-section of experts in the financial services, investments and pensions sector. Clear Path Analysis has a unique position in the market place- because of its model of using majority end users and buyers to contribute to high quality papers.

Risk Management in the Changing Global Environment will be a major theme at  GLOBE 2014 the next in the celebrated  GLOBE Series of Conferences on the business of the environment taking place in Vancouver, Canada March 26-28, 2014. Reserve your place now.   Check here for more details.


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