Survey: Insurers Focus Now On Reallocation, Risk Management

NU Online News Service, May 21, 12:58 p.m. EDT

Most property-casualty and life insurers find growing and keeping business their biggest challenge and are reacting to the recession by increasing cash allocation and strengthening risk management, a survey finds.

The research was reported by the Louisville, Ky.-based Insurance Asset Outsourcing Exchange, which analyzes and aggregates confidential insurers' data for exchange participants.

Fifty-six percent of insurance companies polled said they view business growth/retention as critical, 53 percent of insurance companies are strengthening risk management practices and 35 percent are making changes to their investment policies and guidelines, their survey found.

Eighty-seven of the 112 chief financial officers and chief investment officers polled were with property-casualty insurers, the company said.

Among other top challenges the executives put on their list were risk management evaluation/mitigation and investment performance, both at 48 percent.

Managing investment losses/writedowns were mentioned by 40 percent, and cash flow liquidity management, mentioned by 34 percent, rounded out the top five concerns by percentage.

Cash flow and liquidity management was among the most critical issues mentioned by 46 percent of companies in the $1 billion plus category. Among all p-c companies it was an issue for only 33 percent compared to 50 percent of all life companies.

For actions being taking in addition to the 56 percent who are increasing cash allocation, 53 percent mentioned strengthening risk management practices, 38 percent changes to risk preferences, 35 percent changes to investment guidelines/policy, and increasing stress testing/scenario testing 32 percent.

In looking for help from external third parties, 39 percent said they wanted assistance with stress testing/scenario testing, 37 percent wanted a hand with performance evaluation, 35 percent look for assistance with strategic asset allocation, 33 percent want help to assess or change their risk management approach, and 23 percent want assistance with investment policy and/or benchmark design/review.

David Holmes, partner in the Louisville-based consulting firm Eager, Davis & Holmes, said in a statement, "the survey shows a fascinating link between the critical issues insurance companies face, the actions they are taking, and increasing use of third party investment managers and consultants."

He noted that more than a fourth of insurance company CFO's and CIO's expect to increase reliance on third party investment managers, and 14 percent plan to increase reliance on investment consultants.

The survey found 40 percent of insurers are sticking with asset allocation targets based upon long-term capital market projections.

Mr. Holmes said, "Most others are making tactical changes to get them through the current market and economic conditions, but remain committed to long-term asset allocation targets."

Asset allocation changes recently implemented or planned this year include increases to cash and reductions in common stock and other assets, the poll found.

Mr. Holmes said, "The changes reflect the need to take risk out of insurance general account portfolios and maintain or build liquidity."

According to replies from respondents, most companies aren't yet halfway through the implementation of intended changes in asset allocation.

Insurance company investment officers can request a complimentary report through the Exchange Web site at http://www.assetoutsourcingexchange.com.

The Exchange was founded in September 2008 by Eager, Davis & Holmes.