Captive managers are set to benefit from the expected shift of core fixed-income assets to third-party managers, according to the latest research from The Cerulli Edge—Europe Edition. As insurers continue to simplify and consolidate their asset manager relationships, competition between managers for fewer but larger mandates will intensify. According to the research, managers offering services that simplify investment management and reporting will stand out.

Large internal asset flows from parent insurers have made captive players less competitive, because assets under management have been guaranteed rather than won. As a result, some captive insurers have been less agile. However, as competition increases and institutional investors seek to reduce the number of managers they work with, captives will need to find ways to win new business.

“One option is to pay close attention to what investors currently value most,” says Connor Bigland, research analyst in Cerulli’s European institutional practice. “Emerging trends such as environmental, social, and governance investing are now better differentiators than traditional Solvency II solutions or capital optimization. Asset managers that can offer the full package, including all required reporting and a full spectrum of asset servicing needs, are well positioned to win business from small insurers that value simplicity.”

Another way for captive managers to bolster their growth is to target a broader client base. Captives are typically good at investing across asset classes for sustainable long-term growth, so targeting pension business is feasible. In addition, new regulation and additional disclosure requirements are making asset management even more complex for insurers. Managers that simplify the process for their clients will be more attractive than managers that do not. Some are going one step further by creating platforms for their clients. Platforms offer a “one-stop shop” for investment capabilities and a usable interface for clients to interact with, making the relationship more straightforward to manage and giving the client easier access to the information they need.

Other Findings:

• Real estate investments were hit hard when countries across Europe locked down in March. As economies began to open up again, the crisis appeared to have accelerated existing trends across several sectors. In a polarized market in which the gap between the strongest and weakest sectors continues to widen, pricing and sustainability are under the spotlight.

• Markets recovered significantly in 2Q 2020, but the eventual withdrawal of government and central bank support from the economy will lead to widespread corporate bond credit rating downgrades and defaults.

• When global equity markets sank in March this year, institutional investors were given little time to react, so the hedging strategies they had in place were put to the test. Some strategies worked better than others and investors have been forced to assess whether they should be using a combination of lower-cost strategies to mitigate risk.