Is Your Portfolio Prepared for Evolving Regulation?

April 24, 2018

Keywords: Insurance Asset Management, Asset Allocation, Active Management

Insurance companies are familiar with regulations: State, federal and international rules and laws create a complex environment to do business in. They have to juggle widely among jurisdictions. A nimble and responsive portfolio can help any organization prepare for new challenges while still mitigating risk whenever possible. Here’s what insurers need to be ready for in the next few years.

Changes and Opportunity

According to Deloitte, some of the biggest regulatory issues that insurance companies will face in 2018 include:

  • Cyber regulations.
  • Best-interest standards.
  • Using big data.
  • Enterprise risk management.
  • Corporate governance disclosure.

In addition, the increase in volatility and the rising rate environment are forcing the NAIC to reconsider how to evaluate insurers’ comprehensive portfolio management, not just security-specific risks.

These issues, which touch on a wide range of factors, will require insurance companies to make big changes in how they work. They represent strategic opportunities, but also risk, and as such will affect insurers’ overall business goals and operations. And because asset portfolios must be aligned with business goals, these issues will affect the way insurers should manage their portfolios as well.

A New Way to Invest

Insurers’ asset portfolios are often seen as risk-management tools rather than something that can help drive business goals. As regulatory guidelines shift, investment portfolios must be able to take advantage of new rules and help insurers meet those challenges. There should be a link between the portfolio’s forecasted outcomes and the expectation for the company’s key ratios several years out. By effectively aligning the company’s profile, critical priorities and objectives with the portfolio, it can serve as a strategic business tool rather than as an afterthought for insurers. Additionally, demonstrating that your company has considered these larger, longer-term impacts will likely be a benefit for your regulatory exams.

Increased Reliance on Partners

As the insurance field becomes more complicated, working with trusted partners on a variety of business requirements will help insurers manage increased risk while allowing them to focus on core services. In fact, about 1,800 U.S. insurers reported using an unaffiliated asset manager at year-end 2016, compared with 1,197 at the end of 2013, according to the NAIC’s recently released U.S. Insurance Industry Unaffiliated Investment Management Update, Year-End 2016. Getting help with asset allocation may help deliver a portfolio designed to provide results support the organization’s business goals.


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