Bank vs insurance: regulation constraint differences
Can someone go over the pros and cons and differences of working at an AM of an ib vs insurance firm?
Does it matter if the ib has a commercial arm, insurance firm is mutual vs public, etc
I know with insurance, many firms seek relative returns vs a total return mandate. How does that effect ones experience in investment management
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Can't speak from a bank's perspective, but worked on the insurance side for both a large mutual carrier and smaller non-mutual carrier. At the larger place, you can often be silo'd into various groups doing credit analysis in IG/HY/PE/RE/other. You'll work alongside investment strategy/capital management folks who will provide guidance on how ALM looks as well as capital and regulatory constraints. This will influence what assets you'll source or deals your group might work on. A smaller shop may not have it's own AM arm and relies on external AMs. You'll more likely lean into the investment strategy role where the job will mostly be ALM or portfolio strategy and the occasional vetting of certain deals/assets. Due to lower interest rates, almost all insurance firms are getting their hands into more esoteric structured products to bring in yield and this is probably where a lot of the more interesting stuff is albeit more complicated to model/book. Most mutual companies are rated pretty high by the agencies due to their capital positioning which is reflected by their asset and liability profiles. In that sense the investments being made are more conservative vs. a non-mutual, lower rated company. There are arguably more interesting things happening at a non-mutual due to their risk appetite. It opens the door to a larger universe of assets, strategies and reinsurance/capital work.
thank you, that was very helpful. a couple of questions
1) Why are mutual companies more conservative? I'd have expected public insurance companies like progressive, who are beholden to shareholders, to be conservative
2) What causes the difference in pay and/or return mandate (total vs relative) across the insurance companies, assuming they're not using outside managers? I assume location and AUM relative to size of investment team?
3) What do you think of private debt/equity? I haven't seen any in insurance that isn't a co-investing role, but curious as to pay/exit opps relative to public debt peers that invest directly?
no problem,
1) This is mainly due to culture/leadership/corporate strategy, whatever you want to associate it with. Companies that chose not to de-mutualize when the GFC hit were more conservative and had de-risked a large portion of their portfolios of toxic assets. Progressive holds a pretty high rating for being public, but AFAIK they aren't really a major player in the life insurance/annuity space where most of the insurance AUM sits. They may also not retain their life block as that could be reinsured away to another company. P&C insurance companies have their own investment arms but I'm less familiar with the work they do as the liability durations are much shorter and thus their focus is more focused on shorter, more liquid assets. When I think about insurance asset management I think about AIG, PGIM, LGIM, MassMutual, NW Mutual, NYLIM, Athene/Apollo, and nowadays KKR/GlobalAtlantic. The other side of the coin of a higher rating and marketing side of mutuality is it "feels safer" to prospective and current policyholders. The strategy is to sell the high rating and financial stability to the market. On the institutional side, lots of insurance companies also issue FABN/MTNs/GICs which is a form of debt the insurance company issues and the higher your rating the lower the cost of borrowing is. Rating also plays a bit in the Pension Risk Transfer game as sponsors want whoever taking over their pension liability to be able to meet payments, so once again, selling on "safety" and financial strength. Ironically Prudential was a SiFi for a while and doesn't have the best rating but they basically started the whole PRT business with the landmark GM and Verizon deals which brought billions into their AUM.
2) AUM relative to size helps a little come bonus time due to the larger pool. Also depends on your executive management/PM and how they want to compensate to avoid attrition and headache. In a team of 5 managing the same amount as a team of 10, the team of 5 will be working much more, all else being equal and a good management team will recognize that and compensate accordingly. And yes, a NYC comp will be higher than say TX. AM in an insurance company generally gets paid less than the counterparts at a firm that isn't LDI driven simply due to PnL. It isn't that large of a gap if your comp isn't tied to PnL (PM), as the work is generally the same and you need to retain people from hopping to a higher paying job.
3) Co-investing in the insurance world is how a lot of insurance investment professionals take the jump towards PE and/or external AMs. Happens all the time from what I see. I think it's a much more fast paced environment in that realm. At an insurance firm, your client is your own company. You server to source assets and deals that fit a singular mission. At PE firms and an external AM, you're answering to probably multiple clients that vary in risk profile and investment objectives. The breadth is certainly wider. It's also why a lot of IBD/post-MBA kids move into the field as an exit opp as they work with many clients in their world and hone on certain soft skills that are attractive to these firms. Personally, I hate formatting e-mails, ppts, pdf's, whatever, so I've never attempted to make the jump and at my current skillset I'm probably not a good fit. My colleagues that have made the move towards PE are certainly making more, in the range of 20-50% depending on where they went.
Thank you. That was really helpful. Final questions I promise.
1. How should an applicant decide between diff insurance offers? Are there particular firms that are well regarded or should be avoided? How about asset classes?
2. In terms of exit ops from a public debt experience in the insurance industry, are exits (outside of other insurance firms) restricted mainly to asset managers that manage money for insurance companies? Could you talk about the "right time" to exit and provide some more details on why you're staying?
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