Unique considerations for general account investment management

Insurance investment managers experience many of the same trends as other asset managers, yet they differ in important ways. First, insurance companies often have unique investment goals. They must balance liability matching, maximize book yield, assess credit risk, and keep a close eye on duration management while, as mentioned, deciding whether to manage assets internally, externally, or via a hybrid model. A global insurer may oversee a diverse investment portfolio that includes internally managed liquid assets such as treasuries, municipals, and corporates, alongside externally managed investments such as private credit, mortgage- and asset-backed securities, real estate, and direct lending.

Meanwhile, regulatory and statutory obligations span a wide range of reporting requirements, including NAIC Schedules A–E as well as annual rating agency surveys. Growth, including potential mergers and acquisitions,ⁱⁱⁱ compounds these pressures by introducing risks in onboarding new systems and assets without disrupting operations. Compliance requirements extend across multiple jurisdictions, each with distinct governance and reporting standards.

Perhaps the most important nuance, though, is that insurers are not chasing alpha outright. They are looking for stable, risk-adjusted returns. This is an extremely complicated task in an industry that is quickly evolving in complexity as other players seek to maximize returns through new opportunities. As such, insurance investment managers are in a tricky spot — they must evolve with the industry while maintaining their safe and secure positions.

As the industry continues to advance, insurance firms will need to properly harness their data and optimize their investment strategies to adapt to changing market conditions, claims resulting from evolving liability product profiles, continued M&A activity, and changing demands from ownership structures, without changing their risk profile.

Key challenges in data management

“Of course it's hard. It's supposed to be hard. If it were easy, everybody would do it,” Tom Hanks famously said in A League of Their Own. Those words are famous because they are true — in baseball, and elsewhere, including data management. In tackling this conundrum, there are a few principal challenges insurance investment managers face:

Data aggregation. Managing and consolidating general account investment-related data across systems and sources is a significant challenge. For instance, an Arcesium client recently had to integrate data from approximately 20 different source systems, each with its own unique data structure and security requirements. Moreover, the increasing diversity of portfolios, across public and private asset classes, is creating greater complexity in the data itself. The same private credit deal, for example, can arrive from different managers under different names, maturities, or coupons, creating duplicate records and undermining reporting accuracy.
Complexity in legal entity structures. Insurance companies often have complex legal entity structures. A holding company may have a number of ownership interests, both outside of and inside of insurance, and those interests can vary from full to partial ownership as well as indirect control relationships. Moreover, these can be onshore or offshore entities, which adds to the complexity. NAIC’s Schedule Y requires insurance companies to disclose detailed information on their holding company and affiliate transactions, including “the identities of and interrelationships between the parent, all affiliated insurers and reporting entities; and other affiliates, identifying all insurers and reporting entities as such and listing the Federal Employer’s Identification Number for each.”^iv
Regulatory reporting. Because of solvency risk, insurance companies are held to extremely high compliance standards. However, this landscape is only growing more complex, as regulators look to keep pace with increased opacity in capital markets broadly. The NAIC’s new principles-based bond definition (PBBD),^v for example, fundamentally changes the way insurers approach risk-based capital (RBC) formulas. Meanwhile, in the UK, the Prudential Regulation Authority (PRA)’s new liquidity reporting requirements^vi will require insurers to execute a look-through approach to gain clearer visibility into underlying holdings information.

These challenges are creating a perfect storm for insurance investment managers — they’re struggling to collate and utilize data in an environment where data requirements are increasing rapidly in both volume and complexity.

Forward-looking strategies

Despite the challenges listed above, the future is not bleak. In fact, insurers are only set to become a bigger part of the asset management ecosystem. The imperative for these firms is to solve their foundational data problems, so they can continue to grow their portfolios successfully and benefit from new opportunities as the market evolves.

Here are two key requirements for success:

Centralize data management. Consolidating data from multiple sources into a single, accurate view is crucial. This requires installing a comprehensive solution for centralizing and reconciling the firm's investment data, including public and private asset classes, thereby limiting the need for manual data activities and the risk of errors. Portfolio reference data structures should support many-to-many portfolio hierarchies, which is particularly valuable for insurance companies managing general accounts. A critical part of this effort is ensuring that you’re designing solutions to scale with growth and adapt to evolving regulations.
Data access and interaction. Once you have a centralized view, the next step is to ensure the data is useful. A number of different technology choices can be used to report on a centralized body of data, from dashboards to copilots. The goal should be to enable multiple ways to use the information with ease. For example, imagine you could write a simple query to a centralized data catalog without the need to create elaborate reporting or bother technical counterparts.

In achieving these two objectives, insurers unlock a slew of benefits. These include an independent, holistic investment data model, providing a "single source of truth" for both private and public asset data, as well as a single view of investments across all managers, asset classes, and regions to better enable decisions. Firms will also benefit from accelerated reporting cycles, as manual reconciliation is reduced, and improved risk management capabilities, particularly in hedging, replication strategies, and valuation protocols, through high-quality, reconciled data.

Future outlook

Like other areas in our world, the insurance investment management industry is in a pattern of dynamic change, driven by technological advancements and heightened investor demands. Insurance companies must develop adaptive strategies to navigate this landscape. A cornerstone of those efforts will be addressing their data management challenges, as they look to centralize their activities into a single, modernized platform. Those who do this well stand to gain bountifully through enhanced operational efficiency, improved risk management, and stronger reporting capabilities.