- Addressing local regulation and accounting standards is the leading operational challenge when it comes to firms’ expansion strategies
According to the survey, insurers are becoming more comfortable with expanding their investment strategies; processing new security types, ranked as the number one operational challenge of 2016, has become less significant in 2017. In fact, the percentage of participants that selected this as a top challenge dropped by more than half (from 48 percent in 2016 to 17 percent in 2017).
However, as global regulatory regimes grow more complex, insurance firms are required to produce more frequent and detailed disclosures on holdings and exposures.
A single system capable of accounting for and reporting on a broad range of asset classes significantly reduces the operational risks posed by a patchwork of systems. The survey shows that firms are responding by increasing both technology spend as well as adoption of cloud and hosting providers.
- As firms employ new investment strategies, they require accounting for an expanding array of non-traditional instruments
Addressing regulatory and accounting standards (44 percent), lack of knowledge and talent (32 percent), processing new security types (17 percent), and coordinating with global entities (7 percent) are some the operational challenges that firms face.
To alleviate the burden on staff, firms are adding to their roster of external portfolio managers. In fact, 46 percent of those polled plan to increase use of external investment management over the next three years.
Firms in search of higher yields and greater portfolio diversification are gravitating toward private equity, hedge funds, and other partnership investments (42 percent), as well as alternatives (22 percent).
- With new strategies and asset classes come new risks
Survey respondents cite overall operational risk (29 percent), cybersecurity (22 percent), and regulatory risk (18 percent) as their chief risk concerns. Market (17 percent), talent (10 percent) and model (4 percent) risks rank low on the list of things keeping asset managers up at night.