Risk and Operational Management of Complex Asset Classes Competitive Edge for Insurers
SS&C Technologies Holdings, Inc. (Nasdaq: SSNC), a global provider of financial services software and software-enabled services, today reported the results from its survey conducted at the 2015 IASA conference last week. The survey found complex asset class investing gains greater acceptance among insurers and the ability to efficiently manage its risk and operation is pinpointed as a competitive advantage for the majority of insurers (73 percent).
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 think that their company's current budget for internal technology operations and infrastructure has doubled versus 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," said 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 said their ability to turnaround accounting reports has been affected, while 28 percent said 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 acknowledged 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 agreed 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.
The survey was conducted via in-person interviews held at the 2015 IASA Annual Conference in Las Vegas from June 8-9. The sample includes 120 insurance executives in both life & health and property & casualty insurance, who attended the conference.