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Insurance Industry Asset Management The need for a high-touch, customized model

An Institutional Investor Sponsored Statement<br> We talked to Don McDonald, President, & Chief Executive Officer about the approach that Prime takes and the expertise it brings to its insurance company clients.

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Since its founding in 1988, Prime Advisors, Inc.® has focused its business on managing fixed-income assets for insurance companies. That focus has never wavered. Nearly 30 years later, Prime has clients domiciled in 27 states and across multiple lines of business that include property/casualty, life and health insurers. They manage portfolios ranging from $10 million to more than $1.7 billion. The need for outsourced asset management expertise in the insurance industry continues to grow. Many companies must maintain multiple portfolios as they expand their services, with different goals for each. In addition, regulatory requirements continue to build, increasing the internal expertise needed to maintain compliance. And rock-bottom interest rates remain a challenge – demanding more advanced strategies to meet insurers’ cash flow and return requirements. That’s why Prime, a Sun Life Investment Management company, continues to increase its reach across the United States. We talked to Don McDonald, President, & Chief Executive Officer about the approach that Prime takes and the expertise it brings to its insurance company clients.

Why do insurance companies outsource their asset management?
There can be a number of reasons, but I see two key ones. First, a third party asset manager can provide exposure to fixed income and alternative investment products with higher prospective returns at a lower fee than the client can source and manage internally. Second, it’s often more cost-effective for a client to use external professionals to deliver accounting, tax and investment modeling, enterprise risk management, regulatory reporting and other services for all asset classes. For our clients, they’re able to leverage our proven expertise and results at a cost that’s lower than using an internal management structure with a goal to generate higher returns.

You put a lot of stock in customization for clients. Why?
Customization is an absolute essential – and our ability to do it defines who we are as an investment partner. While most of our clients are part of a single industry – insurance – the needs of each vary significantly. If you take a cookie-cutter approach, you’re going to overlook or under-serve one or more critical client needs. That’s why all of our client portfolios are individually managed, with customized benchmarks in an effort to maximize after-tax returns.

In what ways do needs vary?
There are a number. Cash-flow is a huge variable: clients have different cash-flow patterns, with different expected liability needs and return expectations. That’s why our asset/liability modeling is essential to what we provide. Risk tolerance is another differentiator: some will be able to take on more duration and credit, others less so.And regulatory requirements and pledging/collateral requirements vary across the industry. Our job is to integrate these specific client needs and objectives with the financial market opportunities that we identify to generate the best outcomes for our clients.

Can you give an example of how you might customize?
Customization based on a client’s tax position is one example. As part of our financial modelling, we examine an insurance company’s tax position compared to their allocation to tax-advantaged municipal bonds. Municipals generally provide more after-tax yield than taxable bonds until the alternative minimum tax is reached, with the regular tax rate at 5.25% and the alternative minimum tax rate at 20%.

Our model compares the projected regular tax payable versus the alternative minimum tax; we look to see if there’s an opportunity to increase the municipal allocation to improve after-tax income.

There are many other ways that we customize our products to our clients’ needs, of course, from asset allocation to benchmarking to board-of-director education programs to client reporting. But, at the end of the day, clients hire us to manage their assets and generate consistently above-benchmark returns.

Any other keys to success?
What goes hand-in-hand with customization is ongoing communication, as needs and markets can change quickly. Our clients always have direct access to decision-makers, so they know their needs will be addressed and that Prime will be there as their partner whenever needed. It’s worked well for us – Prime has extremely high client retention, and our clients’ success is our success. The foundation of our business is delivering client satisfaction.


For more information about Prime Advisors, Inc. and its offerings, please visit www.primeadvisors.com.

The Sun Life Investment Management group of institutional investment management companies comprises Bentall Kennedy (Canada) Limited Partnership and Bentall Kennedy (U.S.) Limited Partnership for North American real estate, Prime Advisors, Inc. and Ryan Labs Asset Management Inc. in the U.S. and Sun Life Institutional Investments (Canada) Inc. in Canada. This information is intended for institutional investors only. Investors should consult with their professional advisers before acting upon any information contained in this document. All opinions and commentary are subject to change without notice and are provided in good faith without legal responsibility. Forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions which could differ significantly from the statements.