Asia’s $8tr insurance sector in outsourcing bonanza

Asset management and servicing firms are beefing up coverage of insurance companies in Asia – and for good reason, given the industry’s sheer size and pace of expansion. The sector is proving especially attractive in light of its fast-growing appetite for overseas investments, of which it has outsourced nearly $200 billion, and counting.

Overall, regional insurers’ assets under management have grown at an annualised 7.4% between 2012 and end-2017, from $5.55 trillion to $7.93 trillion, according to data compiled from institutional managers by technology provider Broadridge.

“But what is more impressive is the CAGR [compound annual growth rate] in foreign exposure of 18.2% over the same period,” Yoon Ng, director of Apac insights at Broadridge, told AsianInvestor. 

Global fund managers have benefited from this trend, she added, as Broadridge estimates that overseas outsourced assets stood at $180 billion as of 2017. That represents annualised growth of around 20% from just $20 billion in 2012.

Yoon Ng

Net flows from Asia-Pacific insurers to fund houses totalled $14.4 billion in the 12 months to March 31, 2018. This has made it one of the most attractive segments for global managers’ asset gathering efforts, noted Ng.

OPTIMISM ON OUTSOURCING 

This momentum is expected to continue. In several Asian markets, insurers’ overseas allocation limits are still relatively low – for instance, 15% in China and Thailand – and, what’s more, many insurance firms are well below those caps.

The biggest area of growth between end-2012 and end-2017 by asset class has been alternative investments, followed by equities (see table below). In that period, Asian insurers’ overall allocation to alternatives has almost quadrupled to 13.2% from 3.4%, while their equity allocation rose to 15.0% from 12.3% (though it dropped sharply from 17.2% as of end-2016 after a steady rise until that point).

ASIA-PACIFIC INSURERS ASSET ALLOCATION, 2012 TO 2017*

_{* The markets covered are Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Singapore, Thailand, Taiwan.}

_{** In most countries the alternative investments fall within this category. The exception is China where 'other' is more loosely defined and includes everything that is not strictly a bond, stock or fund investment.}

These increases came largely at the expense of bond exposure, which fell by 9 percentage points over the period, while money market exposure also shrank slightly.

It is broadly expected that regional insurance firms’ alternatives exposure will continue to grow, as large players continue to explore new niche investments for diversification and yield purposes, while many of their smaller peers still have minimal or even zero exposure to non-traditional assets.

Carsten Quitter, global chief investment officer of Germany’s Allianz, which has $35 billion in assets under its Asia businesses, told AsianInvestor last month: “To deal with the low-interest-rate environment, our main focus is on alternative assets.” This reflects a similar approach by other large insurers with operations in the region, such as US-based MetLife.

BUILDING INSURANCE COVERAGE

Accordingly, large firms such as BlackRock, HSBC Global Asset Management and State Street have been adding to their teams servicing insurers in the region.

Last month State Street created a dedicated role in Hong Kong to oversee its insurance services business in Asia and last month brought in Kamal Jandu from Citi to fill it. He heads a team supporting insurers in areas of data management, custody, fund administration, accounting, trading and research.

Meanwhile, HSBC Global AM lured Edith Lin from Axa Investment Managers in July as its first dedicated insurance lead for Asia Pacific.

And Kimberly Kim joined BlackRock in April from Deutsche Asset Management in the newly created role of Asia-Pacific head of financial institutions, a role with a major focus on insurers. This came shortly after Henry Ashworth moved in March from BlackRock’s London office to Hong Kong as head of Asia-Pacific insurance on the client portfolio solutions team, another newly created post.

The other biggest client growth areas in Asia Pacific for fund houses have been sub-advisory for asset managers, bank/corporate treasury, and defined-benefit pension schemes, according to Broadridge.