Edition #8 – Asset-owned Insurer moves (US & UK); Growth opportunities in Asset & Wealth Management

Welcome to Edition #8 of Reinventing Insurance. Back to the asset management and life sectors this week with two related topics to touch on.

Asset Management-led insurers

It’s been a busy few weeks for mature global life and annuity market announcements germane to the shift to the asset management-led insurer model:

• October 2 – Blackstone and Resolution Life announced the they had closed a $10B capital raise. New capital came from a range of global investors and includes a $500M strategic investment from Blackstone as well as an additional over $1B investment from Nippon Life and other existing Resolution Life investors. The $3B in new equity raised brings the company’s overall equity capital base to approximately $8Bn. Readers will recall that Blackstone also has a minority stake and asset management partnership with Corebridge Financial.
• October 9 – Prosperity Life Group, backed by Elliott and Wand Partners, acquired National Western Life for $1.9B (0.8x book) and now has a life company with $23B in admitted assets. The merger is expected to close in the first half of 2024. “Affiliate Prosperity Asset Management is an insurance-focused asset manager specializing in structured credit & niche asset opportunities and origination platforms.”
• October 17 – the FT quoted J. Christopher Flowers as saying that “private capital’s push into insurance is coming with systemic risks…. Unlike private credit funds with locked-up capital, policyholders of life insurance products can withdraw their assets, creating the conditions for a “run on the bank” if loss rates were to rise in private credit portfolios and scare investors.” The issue of liquidity risk for insurers has obviously been around for some time – see for example this 2012 paper that Oliver Wyman prepared with The Geneva Association (the leading think tank of the insurance industry) looking at the issue post-financial crisis (an oldie but still a goodie). The comparative amount of liquidity risk being taken by privately-backed insurers compared to public peers is a complex issue — for example, while some liabilities are callable, some, including Pension Risk Transfer, are not, capital requirements generally include consideration of mass lapse tail scenarios, and insurers’ own liquidity risk management and ALM frameworks are sophisticated.
• On a related theme (related because Pension Risk Transfer is a strong focus area for insurers looking to write asset-intensive, long-duration business), on October 3 — MetLife released its 2023 Pension Risk Transfer Poll.? 89% of US companies surveyed plan to divest their DB pension plan liabilities with an average time horizon of just over 4 years. Assets within US DB plans total ~$3.7 trillion which gives you some sense for the potential volumes involved. 2022 US PRT flows totaled $52B, up from $38B in 2021.
• On October 16, UK consultant LCP reported a ‘seismic shift’ in Pension Risk Transfer (PRT) demand with an increase of over 50% in the number of schemes approaching insurers for buy-in/out quotations compared to a year earlier. LCP projects ￡400 – ￡600B of UK PRT transactions over the next decade.
• October 17, Brookfield was reported to be weighing a move in the UK market with an eye on the bulk annuities/pension risk transfer space. The issue with entry to the UK is that establishing an entity from scratch is a lengthy process in terms of regulatory approvals, particularly for approval of internal capital models. As a result, acquisition of an already established business is seen as having significant advantages.? Within the UK, the three most focused players in the space are Pension Insurance Corporation (PIC), Rothesay, and Just Group. PIC and Rothesay are privately held, Just Group is public. Other players active, though with more diversified businesses, include Legal & General, Standard Life, Aviva, Scottish Widows, and Canada Life. The table below gives a sense for relative scale of each entity.

Growth Opportunities in Asset Management & Wealth

While the asset management-led insurer theme is playing out in balance sheet heavy parts of the life insurance landscape, equally many insurers headed for balance sheet-light models are focused on opportunities to accelerate growth by building out third-party asset management and wealth advisory businesses.

Each year Oliver Wyman and 摩根士丹利 publish a significant research piece examining the most pressing issues and opportunities facing the global asset and wealth management sectors. These reports are substantial undertakings and invariably contain lots for our clients and industry management teams to ruminate on. Our 2023 report was published this week and is no exception. You can find it here and some of the highlights which most struck me are:

• Managed assets will grow by 7% per year from 2022-2027 driven by?#privateequity?with core active continuing to lose share; global household financial wealth will grow at 6% led by Asia-Pacific, the Middle East and the UHNWI segment. Lower top-line growth + stubborn fixed cost base = operating model fragility
• The combination of persistent stress on asset managers operating models, fading macro tailwinds and the revolutionary changes being ushered in by?#genai?are creating conditions that will prompt a "Big Sort" between leaders and laggards
• Asset management leaders will focus on three areas to drive stronger flows: 1. Product Innovation Alpha (youth is king it turns out); 2. Distribution & Service Alpha (clear evidence of stickiness from managers we determine to be 'most effective'); and 3. Fee Alpha (strategic pricing can lead to material gains)
• Operating model transformation is required in many cases with available cost savings of 25-30%
• For?#wealthmanagement, two groups of initiatives are required to unlock net new money flows and profitability: 1) Cracking the Wealth Management-Corporate & Investment Banking enigma; and 2) Elevating capabilities around Workplace Wealth, "Moneyball" for advisor growth, and using GenAI to supercharge efficiency. The prize is substantial - a $200 billion revenue opportunity for wealth managers globally at the intersection of wealth management and corporate and investment banking presents and a $35-50 trillion AuM opportunity in Workplace Wealth, and major strategies to capture assets not only in the channel but also held away.

Oliver Wyman latest releases

A Visionary Leader’s Perspectives: Meredith Ryan-Reid , CEO of Versant Health (a subsidiary of MetLife) joins Paul Ricard on the Reinventing Insurance podcast and shares her reflections on leadership — including experiences on driving growth and #reinvention for the world’s leading #healthcare, #insurance and financial services companies. Meredith shares perspectives into future healthcare trends, new ways of working, and Gen AI capabilities. Tune in to Reinventing Insurance.

The Generative AI Tipping Point: What’s next for wealth and asset management? Generative AI is creating opportunity and disruption for all industries and the wealth and asset management space is no exception. In our 2023 Global Wealth and Asset Management edition with Morgan Stanley, we share what's trending in the industry, strategies for winning market share, and ways to harness the transformative power of Generative AI across your activity chain. Learn more here

https://www.dhirubhai.net/newsletters/reinventing-insurance-7072974192719077376/

In this newsletter, my aim is to pick topical issues and news and relate them to the macro issues happening in the insurance industry. I publish biweekly and look forward to your thoughts and comments.

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• Edition 1: A look at the macro shape of the Insurance Industry
• Edition 2: A look at the latest insurance macro trends
• Edition 3: A Look at Personal Lines P&C
• Edition 4: Become an Asset Management-Led Insurer
• Edition 5: P&C market cycles, underwriting challenges, and relative sources of profitability
• Edition 6: Private equity’s rapid growth in the insurance sector
• Edition 7: CIAB Meeting Dispatches

Mick Moloney is a Partner at Oliver Wyman, based in New York. He is Global Head of Insurance & Asset Management and Actuarial. In combination these groups include over 700 colleagues globally dedicated to providing advice to Life, P&C, and Health insurers, asset managers, and private capital sponsors across strategy, operations, technology, finance, risk, and actuarial disciplines

Mick spends his time working with leading insurers, asset managers, and advisory firms on a range of strategic and execution topics with a particular focus on growth, innovation, and efficiency in retail and institutional markets. He’s passionate about growth and reinvention in the industries he serves, with a strongly held belief that while each is facing disruption and dislocation, there are massive unmet needs which provide the prospect of a bright and vibrant future.