Margolis Advisory Group, Inc. . Investment Management . Consulting . Sales

Managing Insurance Company Investments

Since I posted comments earlier in the week about insurance companies trying their hands as asset managers, a few people have asked me to comment on a related business: managing money for insurers. This is something I know quite a bit about, having spent a good part of my career focused on it. Recently, it seems, a number of asset managers are looking at this segment, either for the first time, or to reexamine their current efforts. The pool of assets is large, so it is certainly worth considering as a target segment.

Insurance companies hold assets in two very different pools: their general account; and their accounts held on behalf of others, technically called the “separate account” of the insurer. Variable annuities and mutual funds are often part of the “separate account.” Unaffiliated asset managers often manage funds within the variable annuity or mutual fund family, or subadvise to these fund families. To the asset manager, this business is very similar to the mutual fund business in terms of asset classes, pricing, and manager selection.

The general account constitutes the insurer’s own funds. This is the pool of assets most managers think of when they consider the specialized segment of insurance companies. Largely a fixed income portfolio, this pool also often contains some equities and alternatives. The fixed income frequently includes specialized fixed income sectors.

The business of managing insurance companies’ general accounts is quite competitive, demanding very specialized knowledge and capabilities, and is often fee sensitive. However, for those that make the investment, asset growth can be substantial. In addition, the use of specialized asset classes allows for greater fees.

The key to being successful in this business is carefully thought through business and marketing plans that are consistent with the strengths of the manager and the market opportunities. Missteps are easy to take, resulting in either failed efforts or unprofitable business growth. Caution is wise, but with proper expert strategy, the business can be quite successful.

Add comment October 14th, 2009

Business Planning-SWOT

I’m working with a client who is now constructing a business/marketing plan. As I mentioned in my last white paper, a SWOT analysis is very helpful in this exercise, and it’s proven to be invaluable for my client. This technique analyzes stengths, weaknesses, opportunites, and threats, and it really helps one focus. It can help to quickly identify areas for improvement and where to really concentrate one’s attention. One important point: when planning, don’t get to the end of the process before bringing in team members and subordinates. You will always get valuable input, and investment management employees generally don’t appreciate a plan which is delivered to them for execution without having had any input.

2 comments August 19th, 2009