Cerulli Associates, an asset management consultancy, estimates insurance companies based in Asia ex-Japan have outsourced up to $67 billion of investment assets to third-party fund managers, as of December 2005. It projects this amount could more than double by 2010, rising to $182 billion.

This rise reflects the growth of insurance throughout the region given low penetration levels and increasing wealth. Outsourcing includes the institutions handing out discretionary mandates from their general accounts as well as managing money for unit-linked product.

Cerulli calculates that as of December 2005, insurers from six Asian markets outsourced $43 billion from their general accounts and another $24 billion for separate account activities û mainly for unit-linked products. It estimates by 2010, general account outsourcing will reach $112 billion while unit-linked business will represent another $70 billion.

These numbers only represent assets managed by unaffiliated or third-party managers. The actual assets being managed will be far greater. Today, Cerulli believes total insurance assets for China, Hong Kong, India, Singapore, South Korea and Taiwan is $950 billion. Of that amount, the total investible assets (not including fixed assets) was measured at $753 billion, of which $67 billion was handed out to unaffiliated investors.

The consultants project total investible insurance assets for those markets (excluding Hong Kong) to hit $1.86 trillion by 2010, representing a compound annual growth rate of 19%, while addressable assets that third parties can target will grow to $233 billion (or 26% CAGR). Life insurance assets by far comprise the biggest source of business, as this sector is six or seven times bigger than non-life in these markets.

ôAs a result of the popularity of unit-linked insurance products, and AsiansÆ ability to afford insurance protection and retirement planning, total investible insurance assets across six of the biggest Asian insurance markets is estimated to reach $1.86 trillion by 2010,ö says Shiv Taneja, managing director at Cerulli in Singapore. ôThatÆs well ahead of the $850 billion projection for mutual-fund assets in these countries.ö

But unlike in the United States, where most insurance assets are outsourced to third-party managers, a number of factors will keep addressable assets low, including regulation, high costs and a general lack of familiarity with outsourcing.

Taiwan is the most attractive market for institutional outsourcing, with some opportunities emerging in Korea. Most insurance companies operating in Hong Kong and Singapore are multinationals that have internal asset-management capabilities, while regulations in China and India prohibit institutional business.

The retail side, however, offers plenty of scope in all six markets.

China and Korea are the two biggest life insurance markets in Asia ex-Japan. Korea offers a large market in asset size, with investible assets of $237 billion as of December 2005 û or half the mutual fund market of all Asia ex-Japan at that time. The market is beginning to open and while institutional mandates have dominated, the popularity of variable annuities, whose premiums make up separate accounts, makes this the bigger growth opportunity.

ChinaÆs investible assets are growing the fastest in the region, at a CAGR of 40%. Given ultra-low penetration rates, this pace seems sustainable. Despite low penetration, its size still accounts for 23% of the regionÆs addressable insurance assets, and its $175 billion insurance market is already 35% the size of Asia ex-JapanÆs total mutual funds industry.

But regulations do not at present allow assets to be managed in the form of discretionary mandates, which effectively prohibits outsourcing. China has allowed its insurers to establish æinsurance asset management companiesÆ but these IAMCs are also likely to manage investments themselves, with few outsourcing opportunities. So despite its size, China will remain a challenge for third-party investment managers, as will India, another giant where regulations bar insurers from outsourcing investment management. But Cerulli believes that these restrictions will be lifted; the question is when.