How Singlife employs tech partnerships to manage portfolios

Technology partnerships have helped Singlife manage risks as well as long-term assets and liabilities more effectively, a senior executive said.

The Singapore-headquartered insurer’s investments office uses BlackRock’s widely-used technology platform, Aladdin, as a trading, portfolio and risk management system.

“We are very fortunate to be able to leverage off the same infrastructure and technological tool that the largest asset manager in the world uses,” Allen Kuo, chief investment officer at Singlife, told AsianInvestor.

TECH TOOLS

Kuo said the Aladdin system allows for an "advanced quantification of the risk" that the insurers underwrites, which helps in understanding whether Singlife will be rewarded for those risks.

“Where we have risks which are not compensated for, we close them out,” he said.

Kuo, who was named chief investment officer of Singlife in early 2024, joined the insurer in August 2022 after an extensive career that included being one of the original architects of Aladdin.

He was also recently named as one of AsianInvestor's top 15 life insurance executives in Asia.

Examples of some of the analytics that Singlife uses via the BlackRock tool include curve risk quantification beyond duration (e.g. key rate durations, principal component durations), what-if portfolios for portfolio optimisation, macro-economic factors and separation of interest rate risk factors into inflation and real rates components. 

While these ideas may be more common in asset management, they are newer to the insurance business, Kuo added.

Another key piece of technology the insurer employs is Ortec Finance’s GLASS.

“This is a simulation and modelling tool for strategic asset-liability management. Our long-term liabilities to policy holders drive our asset allocation investment mix to bonds and equities,” he said.

“GLASS is used to simulate interest rates and various asset returns over long time scales (e.g. 30 years) to ensure asset returns can meet our liabilities over the long term.

“Again, this is precisely why we emphasise sophisticated asset-liability management, as the participating fund must remain healthy and solvent to pay out bonuses,” he added.

Kuo has previously emphasised that a focus on optimal asset-liability management is the key objective for insurers, not simply generating investment returns.

EVOLVING CIO ROLE

Singlife was the first local insurer to be licensed in 2017 by the Monetary Authority of Singapore since 1970. It acquired the business portfolio of Zurich Life in 2018 and merged with Aviva Singapore in 2020.

It became a fully-owned subsidiary of Japan’s Sumitomo Life in 2024.

Kuo noted the role of the insurance CIO has changed significantly in recent years years.

That’s mainly driven by an increased focus on private assets, especially private credit, and the ability to underwrite private credit risk. 

“Also, sustainability has become much more important now, with the Singapore government keenly interested in climate risk and net zero,” he said.

“Investment offices in Singapore have had to hire in this area as well as change investment strategies to meet these new constraints.”

For Singlife, the investments office is a relatively newer function.

It has a relatively smaller team compared to other insurance investment offices in Singapore, and the team is mostly made up of staff from outside of the insurance industry, such as asset management, hedge funds, and banks.

SUSTAINABILITY FOCUS

The investments offices ensures that the insurer's investments are sustainable.

Carbon emissions from portfolio companies add to climate risk, a long horizon risk, said Kuo.

“We must consider this risk before underwriting our investments, as we have very long-dated liabilities.

“With this approach, and by working in conjunction with like-minded institutional investors around the world, investee companies are forced to more seriously consider sustainable business practices, and the true costs of carbon emissions,” he added.

Singlife has partnered with Amundi, a leader in corporate engagement, to deal directly with investee companies, to try to influence sustainable outcomes.

Singlife is also targeting a 25% reduction in scope 1 and 2 carbon emissions by 2030.

It directly finances decarbonisation solutions globally, such as direct investments in renewable energy projects, including solar and wind power plants.

Kuo said the young insurer has, over the years, taken its building blocks to form high-level strategies that play to its strengths while also introducing new ways of doing things within a traditional insurance company.

“While we mainly stick to the long term, fundamental investing as part of our asset-liability management, we don't want to get so dogmatic so as to avoid looking at shorter term opportunities where the risk/reward balance is favourable.”

The Aviva merger, in particular, helped Singlife develop its own investment model and move away from a previous outsourced CIO model.

The insurer had about $8.5 billion in assets under management at the end of 2023.