By Nigel Birch, 3 July 2013Market Intelligence | Insurance Asset Management
The European Insurance asset management market is complex, opaque, and frankly rather confusing – especially when seen through the eyes of asset managers. We believe this does not have to be the case and have focused on demystifying this market and describing the growing opportunity that exists for asset managers.
It is generally understood that the insurance market is really very big indeed. The total assets of European insurance companies are €9.1 trillion. That is enough matchsticks, stacked end to end, to reach to the moon and back 500 times!
Importantly however, for those who are still reading and not already penning their business case, the total figure means nothing very much at all for asset managers. For this figure includes intangible assets, accrued income and debtors for example. A much more sensible figure for this market would be ‘total investment assets’. This definition puts the market at €8.5 trillion, but sadly this still includes life assurance assets, like unit linked policies, which despite their insurance wrapper are not ‘freely investable’ insurance assets at all. So, after we remove these too, we are left with ‘general account’ assets; a figure of about €6.3 trillion which probably most accurately describes the size of the European insurance asset management market today.
More importantly, when presenting the opportunity for asset managers, just sizing the market is not enough. Large insurers often have affiliated asset managers who, while in principle could lose their affiliated client, don’t tend to all that often. Importantly these insurer affiliated asset managers tend not to outsource much to third party asset managers. Moreover, insurers also tend to invest a large proportion of their assets directly, by purchasing government bonds for example. When we get to the asset class level, liquidity is king in certain segments of insurance, making cash funds a significant part of an insurers’ portfolio. Long duration is also an important investment objective, especially for the life sector making fixed income products very popular across the market - especially in France where fixed income alone account for over €1.3 trillion. In fact each of the European markets has its own unique characteristics with quite different life/non-life splits and different asset allocations and regulatory frameworks.
The upshot is a smaller than expected revenue opportunity for asset managers which is already dominated by a few market leaders. Despite this, our new research suggests this is changing, and that recent drivers are increasing the opportunity for insurance affiliated and non-affiliated asset managers in the European market.