While most insurance allocators are by definition risk-averse investors, one life insurer is making a growth play — and it’s paying off. Thanks to a surplus of capital, an in-house OCIO business managing the assets, and a total return mindset, Western & Southern Financial Group has a notably higher-than-average allocation to equities, particularly value stocks.
Brendan White, co-chief investment officer of both Western & Southern and its investment management arm Fort Washington Investment Advisors, says that because Western & Southern “is the most well capitalized life insurance company out there,” they can manage their assets with a total return bent.
“Because of our surplus of capital, we have a higher allocation to equity than our peers, which has driven our growth,” White told Institutional Investor.
Through Fort Washington, White and his co-CIO Christopher Shipley manage Western & Southern’s $65 billion portfolio (the OCIO business also manages about $30 billion in third-party assets).
Most insurance companies invest to match their liabilities, which is why the bulk of their assets are in fixed income. However, they are increasing their allocations to private assets, and OCIOs are starting to court them as potential clients.
While the insurer’s liabilities are backed by bonds — 83 percent of the portfolio is in fixed income — White and Shipley allocate roughly $5 billion, or 6 percent, to stocks, higher than the 2 percent average life insurance allocation. It also has 2 percent (roughly $1.5 billion) in private equity.
Since equities have outperformed fixed income, this higher allocation to public equities has generated value. Per White, the portfolio has grown by 12 percent over the past 10 years. Data from insurance credit ratings agency AM Best show that the average net 10-year yield for the life and health insurance industry is 3.44 percent. (In April, AM Best upgraded its outlook on Western & Southern’s subsidiaries from stable to positive thanks to the insurance company’s strong balance sheet, “adequate operating performance, favorable business profile, and very strong enterprise risk management.”)
