Both public and private insurers, asset managers, distributors and consultants strove to take the collective temperature of the asset gathering industry while highlighting expected trends at UBS’s seventh annual Asset Gathering Conference held in Boston from March 22-23.
American International Group (AIG), Lincoln Financial (LNC), MassMutual, McKinsey, MetLife (MET), Milliman, and Principal Financial Group (PFG) all took part in the information sharing forum. The main themes that emerged for the industry were a focus on profitable growth and the increasing importance of proper risk management.
Within in the growth spectrum, AIG expressed the attractiveness of the retirement savings market and its potential to grow from $16 trillion to $20 trillion in 2015. Profitability, while always crucial to the health of any company or industry for that matter is exceedingly important today, according to AIG, because of low interest rates and high market volatility. MET concurred and said that profitable growth is “the key going forward” and any sales discussions must include returns on those sales.
MassMutual touched on the second overarching theme to emerge, the increasing importance of risk management. In the aftermath of the financial crisis, risk management has come to the forefront as a preeminent issue for individual companies, ratings agencies and investors alike. MassMutual described how it is essential that insurers manage capital risk, earnings risk, liquidity risk and franchise risk in order for them to be effective. They also stressed the importance of determining the level of risk that they can tolerate and implementing a strategy throughout the firm that embeds risk management within each individual business line.
AIG and MET gave and example of proper risk management when they went on to describe how utilizing a diverse business portfolio lowers risk because there is not a reliance on any single product.
Variable annuities have been a popular product for companies to de-risk since the financial crisis. One way companies are handling this is embedding risk in the actual product design of variable annuities. According to Milliman, these new, de-risked variable annuities products require lower reserve requirements. McKinsey estimated that individual annuities historically had a 18% cost of equity and variable annuities generated a mere 11% of the life industry’s overall profits while at the same time eating up 16% of the industry’s capital. Milliman pointed out that the new de-risked variable annuity products have lower costs of equity as well as lower capital requirements, rendering them an example of both of the key themes that emerged for life insurers, profitable growth and risk management.
MET was named the “top pick” out of all the companies that participated because of it has the qualities of a top insurer (as described by McKinsey), which includes higher contributions from higher risk-adjusted return products (group lines), proprietary distribution channels, and strong risk management. MET’s commitment to capital returning was also encouraging.