Insurance companies tend to select a custodian and maintain that relationship for years. In our experience, specific points of frustration can lead insurance companies to consider custody alternatives, such as:
- Inability to process bank loans and private-credit investments
- Uncertainty about a provider’s commitment to the custody business for the long haul
- Lack of responsive service
- High fees
- Access to credit facilities and other complementary banking services
When exploring custody options, insurance companies rightly place their primary focus on financial stability and security of assets. However, it’s helpful to go beyond those basics to ensure a long-term fit. Here are questions to consider asking your potential custody partners—whether you are a long-tenured insurance company or a newly formed one:
- Is the custodian well-versed in the assets held in insurance company portfolios, including bank loans and private assets?
- What are the options for earning yield on cash? Does the custodian offer both proprietary and third-party money market funds?
- When you have an urgent need, like a trade settlement issue, a wire transfer problem, or you require a quick status update, can you get a real person on the phone to rapidly resolve the matter?
- Beyond asset safekeeping and securities settlement, what services does the custodian offer? Are securities lending and treasury management available? Can the custodian custody electronic documents relating to private assets?
- What specific protocols does the custodian have in place to protect your assets from bad actors and fraud?
- Can the custodian integrate their custodial services with core banking services to provide you with cohesive service on a single platform?
- Can your custodian provide automated data feeds?
Complex asset and regulatory understanding
Of the topics here, we hear “responsiveness” come up most often in our conversations with insurance companies. We believe a custodian’s ability to be responsive starts with its service model and commitment to the business. However, specialized experience working with insurance clients is another significant factor in client-service speed. Our custody team, for example, is experienced working with a diverse client base across life, property/casualty and specialty insurers.
Specialization especially matters when it comes to complex assets and regulations.
- Complex assets and collaboration: In our experience, insurance companies benefit when custody professionals can readily tap the expertise of valuation professionals. Another area of current focus is bank-loan portfolios. Corporate trust services complement custody in multiple ways, including access to a collateralized loan obligation (CLO) trustee and administration team, although not all corporate trust players offer this specialization. A CLO team can assist with administration matters in bank loan portfolios.
- Regulations: Custody professionals should be familiar with relevant aspects of both NAIC and state-level insurance regulations.
Closing thought
Proactively discussing the eight questions highlighted in this article with your current and prospective custodians can help you pinpoint limitations in your existing arrangement. The ideal custodian will serve as a true partner, providing personalized service, competitive capabilities, and specialized expertise to support the unique needs of insurance company clients.
Learn how UMB can support your firm’s domestic and global custody needs with our comprehensive services and high-touch service model.
