Asset Owners

What life insurers want from fund houses

Asia-based risk managers at three European insurers have outlined where their firms need help from banks and fund houses. Greater regulatory harmonisation is also on the wish list.

What life insurers want from fund houses
Wong Ka-man says Axa Asia is seeking more esoteric investments

Insurance firms the world over are becoming subject to tighter rules governing how much capital they must hold in relation to the investment risk they are taking. Asian arms of European insurers arguably have it tougher than most, because they must comply with both the incoming Solvency II regime in Europe and local risk-based capital (RBC) rules in markets such as India and Singapore.

Against this backdrop, three risk management heads at AsianInvestor’s Insurance Investment Forum in Hong Kong last week cited areas where they are seeking more help from asset management firms. These ranged from speciality investment expertise to providing more detailed reports.

Wong Ka-Man, regional head of life risk management at Axa Asia, said her firm is increasingly looking to fund houses for sourcing harder-to-access assets, such as infrastructure debt, private loans and real estate loans.

“More and more we are also looking for their expertise to help [break down] the complex formulas behind these structured vehicles, so we can understand their pricing [better],” she said.

Geoffrey Au, Asia-Pacific chief risk officer in the life division at Zurich, is looking to banks, as well as asset managers, for assistance.

“There are a couple of areas where insurers might need some help.  One is managing the different capital regimes,” he said. For example, different capital calculation requirements in different markets create difficulties for insurers’ investment strategies.  “If there were some solutions that could help us bridge the different capital regimes, that would help,” said Au.

He would also like to see banks offer cheaper solutions for mitigating capital volatility for insurance companies, noting that those that are available are prohibitively expensive for insurers. “If someone can devise a way to take on capital volatility for insurers much cheaper than insurance companies can, we have a winner.”

Au also pointed to what he saw as a nascent development in the investment-linked product (ILP) space, whereby risk is managed inside the fund that forms the basis for the ILP, rather than outside it.

“It used to be that you managed the volatility outside the fund, but now people are trying to do it inside,” he noted. “It’s a good concept but relatively untested. And pretty much everyone is offering the same product, so I think you need to find a way to differentiate yourselves.”

There are also more mundane areas where insurers need help, such as submitting reports to regulators, said Annie Tay, Hong Kong chief risk officer for Ageas.

New rules such as Solvency II require more granularity of data from asset managers, to demonstrate the level of controls and governance in place from an outsourcing policy, noted Tay. “[Such reporting] has to be ramped up and to be clearer.”

Meanwhile, Tay and Wong said they wanted to see more harmonisation of RBC rules across markets.

This would help simplify product development, for example. “We develop different products, and we need to know how much risk capital we are consuming using internal economic capital models,” said Wong. Harmonised rules would mean insurers would be using the same measure across the board.

The large number of RBC consultations taking place around the world “are not helping”, agreed Tay. “The compliance cost is huge and the value-add is very little. We need to try to make sure we harmonise if possible and follow the same or similar regimes.”

¬ Haymarket Media Limited. All rights reserved.

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September 2016 Magazine
AsianInvestor Magazine

What's in this issue

Expanding ESG in Asia
Q&A: Jupai Holdings
The Brexit fallout for fund managers
Chinese hedge funds step offshore