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.

Some consider this inaction prudent; they are exercising a sense of calm within the storm. Another description might be complacency. They are neither taking actions to avoid additional risk, capitalize on opportunity, or manage their business proactively. While it has been difficult to keep up with the volatile environment, managers who have well thought through strategies, and execute efficiently, are likely to be those that take most advantage of the tumultuous times.

The fact of the matter is that nobody really knows. I find managers cautiously optimistic, hoping to return from vacations to recovery and expanding businesses, but not with a high degree of confidence. How should management respond to this environment? By staying nimble, investing in targeted ways, draining inefficiencies out of their organizations, stepping up communication with their employees and clients, and focusing on execution to drive results. Planning must be dynamic, thoughtful, and flexible. I am very hopeful that recovery is near, but my sense is that volatility will remain high, as it applies to the economy, markets and the industry, and management which stays very close to the marketplace to react to quick changes will prove more successful than their counterparts who don’t.