The banking report—custody services


MORE THAN SAFEKEEPING...


Intelligent Insurer investigates how developments in both the life and non-life insurance sectors are altering the demands being made on custodians—and how banks are responding to these changes.


whatever assets you have invested in, you know where they are held and what your entitlements are.”


“ This is how Penelope Biggs, executive vice president and head of the


institutional investor group for EMEA at Northern Trust, describes the conventional services provided by a custodian to an insurer or reinsurer.


However, according to Biggs, this role is changing. “In the past 12 to 18 months, it seems the world has turned on its head


in a positive way, leading to both existing and prospective insurance and reinsurance clients looking for a fundamentally different type of service,” she says.


A recent report by major custodian, State Street, found that big changes in the life insurance sector were forcing insurers to change how they


30 | INTELLIGENT INSURER | September 2011


Traditionally, through our insurance relationships, we have provided what we refer to as global custody, meaning traditional settlement, safekeeping, administration and reporting services. This means that


approach their business. Key areas of review are related to the use of capital and a focus on what is core versus what can be outsourced.


“The extent to which an insurance company would depend on an


institution like ourselves is rapidly evolving and the value chain is being redefi ned. It is fundamentally different from how they would have in the past,” says Wade McDonald, senior vice president at State Street Global Services.


“Given the changes in global demographics, people are living longer and


their requirements in terms of fi nancial services are changing, especially in terms of pensions and long-term savings, hence distribution models are key to future success.”


This, as the recent State Street report notes, has led to the pressure


shifting from employers or the state to individuals. In some cases, this has led to insurers rethinking their business models.


“The product set and areas of focus for insurers are now more acutely


defi ned by each entity,” says Wade. “Therefore, some institutions will become specialists in the de-cumulation phase, while others will want to focus on the accumulation phase.”


This focusing of insurers’ minds on how to carry out their core functions


more effi ciently will inevitably lead, the State Street report notes, to an increase in outsourcing “across the insurance company value chains”, enabling insurers to “compete effectively in this new environment”. Some of this extra work will fall on custodians.


These additional requirements are also noticeable in the wider insurance and reinsurance markets, says Biggs.


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