Building long-lasting strategic partnerships with insurers will be a priority for many asset managers operating in Europe over the next three to five years, according to findings from the latest issue of The Cerulli Edge―Global Edition. More than half of asset managers intend to prioritize growing the number of strategic partnerships they have with insurers.

General account insurers in the region are turning to strategic partnerships in a bid to streamline their relationships with external asset managers to improve operational efficiencies and profits. Asset managers aiming to secure such strategic partnerships need to be prepared to accept fee cuts, often of between 10% and 20%. However, strategic partnerships can improve the longevity of relationships and increase managers’ ability to cross-sell into higher-margin asset classes.

“Managers should prioritize the stability of revenues rather than asset growth because competition in the region’s insurance asset management industry is set to grow,” says André Schnurrenberger, managing director, Europe, at Cerulli.

Insurers’ growing demand for add-on services and greater customization, especially in relation to environmental, social, and governance (ESG) sectors, provides opportunities for managers to charge higher fees—or at least not reduce fees to the same extent as might otherwise be necessary. However, Cerulli believes managers’ ability to do this will diminish as it becomes standard practice.

Cerulli defines a strategic partnership as one that comprises a wide range of services beyond basic investment management, including strategic asset allocation optimization, Solvency II optimization, risk and scenario analysis, liquidity analysis, technology provision, and specialized investment accounting and reporting services.

It is difficult to estimate the size of a typical strategic partnership engagement, but Cerulli’s survey of asset managers found that partnerships tend to be preferred by smaller insurers and that the average size of strategic partnership mandates is between €1 billion (US$1 billion) and €25 billion.

Under the strategic partnership model, insurers have relationships with fewer managers and each manager has wide discretion. In exchange for the broader mandate, the manager must provide more in-depth input to the client. Nearly 20% of German and French insurers Cerulli surveyed anticipate decreasing the number of asset managers they work with over the next 12 to 24 months. They are more likely to seek strategic partnerships with asset managers than insurers in other insurance markets in the region. U.K. insurers offer the fewest opportunities to build strategic partnerships.

Managers with both scale and dedicated insurance solutions teams are best positioned to commit time and resources to partnerships with insurers. Insurance asset managers that are part of banks are among the ones that will benefit the most from the growing demand for strategic partnerships.

Other Findings:

• In the U.S., climate change considerations are not yet driving insurers’ investment decisions, although demand for responsible investment is developing. Insurers are looking for ESG product to hedge against potential regulation or climate risks. Asset managers that can offer ESG-friendly products with strong performance and capital efficiency can expect increasing demand from insurers.

• Regulatory relaxation across Asia is spurring product partnership among asset managers, with interest focused on thematic equities and sustainable strategies. For example, the Greater Bay Area Wealth Management Connect allows managers in mainland China, Hong Kong, and Macau to access assets in each other’s markets and In Southeast Asia, master-feeder, fund-of-funds, and subadvisory arrangements are among the most viable ways for foreign firms to access local retail assets.