Complex asset class investing gains acceptance among insurers

Investing in complex or non-traditional asset classes can help maximize portfolio returns in a sustained period of record low interest rates and yields. Investing in complex or non-traditional asset classes can help maximize portfolio returns in a sustained period of record low interest rates and yields.

Nearly three-quarters of insurers (73 percent) view complex asset class investing and the ability to efficiently manage its risk and operation as a competitive advantage, according to new research.

SS&C Technologies Holdings, Inc., a global provider of financial services software and software-enabled services, disclosed this finding in a summary of results from its survey conducted at the 2015 IASA conference last week.

Investing in complex or non-traditional asset classes, such as syndicated bank loans, derivatives, private equity and hedge funds, etc., is a strategy to help maximize portfolio returns in a sustained period of record low interest rates and yields. As a result, mounting asset complexity can also increase a firm’s operational costs.

According to the survey, more than three quarters of insurers (78 percent) think their organization is spending up to $20 million on adopting technology infrastructure and staffing to address reporting of complex asset class investments. Additionally, nearly half believe their company’s current budget for internal technology operations and infrastructure has doubled from three years ago.

“The quest to maximize yield leads insurers to invest in more complex asset classes. This can pose challenges for an organization’s operations, accounting, and technology teams,” says Timothy Reilly, senior vice president, institutional investment management, SS&C Technologies. “Leveraging cloud-based accounting and reporting services in support of complex assets is quickly becoming a competitive advantage for insurers, especially in this rapidly changing regulatory environment.”

When asked about the impact that the changing regulations and reporting requirements have on their firm as it relates to complex asset class investments, 46 percent of insurers say their ability to turnaround accounting reports has been affected, while 28 percent say they’ve needed to increase staffing to support reporting needs. And 26 percent have increased their training budget to ensure their staff is up-to-date with the latest regulations.

Following up on the reporting requirement question, nearly half (42 percent) of insurers acknowledge that their staff spends up to 15 more hours than last year on generating reports of complex asset class investments. Additionally, 82 percent of insurers agree that their risk management practice would be “somewhat” to “a lot-more” effective if their organization had more up-to-the-minute web-based data analysis and reporting.

Looking forward to the next three years, insurers are evenly expecting data security and the integration of front-middle-back office to consume the most significant portion of their organization’s resources due to the rapidly changing regulatory requirements. Data latency issues and scalability are also cited as technology challenges that will face insurers over the next three years, but at a lower priority.

See the charts beginning on the next page for additional highlights from the survey.

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