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Asia Pacific insurers seen to up exposure to passives, alternatives

By Asia Asset Management  
November 28, 2019

Asia Pacific insurers will likely focus more on alternative and passive investments with assets outsourced to third-party managers forecast to jump 70% over four years to US$937 billion, according to Broadridge Financial Solutions.

The outsourced assets reached $551 billion at the end of 2018 after expanding at a compound annual growth rate of 16.5% over the last five years; the pace is expected to slow to 11.2% between 2019 and 2023, the US financial technology firm says in a statement on November 25.

These assets are expected to account for around 7.2% of the insurance companies’ total assets in 2023, up from 6.6% currently, Yoon Ng, director for Asia global market intelligence at Broadridge, tells Asia Asset Management.

According to Ms. Ng, outsourcing of insurance assets will “remain the fastest-growing client opportunity for third-party asset managers”.

Broadridge says average returns for outsourced insurance assets currently range between 4% and 6%.

Insurers are increasingly looking to exchange-traded funds (ETFs) and index funds because of their low investment cost.

“There has been growing demand for bond ETFs and index funds as they’re seen to be cheaper, more diversified and can potentially provide stronger returns,” Ms. Ng says in the statement.

Demand for alternative or non-traditional investments such as infrastructure debt and real estate is also gaining traction.

“A recent wave of deregulation in several Asian markets and the growing size of insurance portfolios allow insurers to invest in large illiquid assets,” Ms. Ng says.

As such, fund managers are hiring talent from insurance firms to beef up their insurance asset management capabilities, she adds.

Broadridge also says transparent investment process and access to portfolio managers are becoming key criteria in the selection of external managers, in addition to performance.