Since the financial crisis, investors have increasingly balked at the opacity of life insurance financials, as much of what gets booked as earnings is subject to assumptions around interest rates and customers’ longevity. Investors also are placing greater emphasis on “intrinsic” measures of value such as free cash flow, dividends and the value of in-force and future business. Investors find it easier to assess earnings projections in asset management, so that for a given growth rate, asset managers tend to be rewarded with a higher multiple than straight life insurers. This is one reason that many life insurers are eager to move into asset management and other capital-light businesses. However, insurers will have to develop and master some new capabilities in order to succeed. To that end, insurance companies can choose one of five archetypes, each of which entails clear choices around strategy and execution.
Antonio Rodrigues, Jed Fallis and Andrew Schwedel are partners with Bain & Company’s Financial Services practice. They are based, respectively, in Toronto, Toronto and New York.
As more insurers shift to capital-light business, they discover that they need new capabilities.