How closely should banks and insurers work together?

The relationship between banking institutions and insurance companies is an intricate one that all too often is condensed down to how the former advises the latter on M&A activity. But as explained by Franck Viort (pictured), EMEA managing director and head of insurance at MUFG – a global financial services group and one of the largest banks in the world – the links between banking and insurance run a lot deeper, and could run a lot deeper still.

At a global level, MUFG has significant balance sheet capacity available for Financial Institution (FI) clients, he said, in particular insurance companies, with whom the company has been building its relationships in recent years. Forming strong partnerships with insurers is a professional touchpoint for Viort who joined MUFG EMEA in London almost seven years ago but has been working with insurers for over 15 years now.

How MUFG EMEA works with insurance companies

Outlining some of the main ways MUFG works with insurers, he highlighted that his role in the EMEA region sees him connecting with them as a strategic priority.

“Banks with large balance sheets, like MUFG, can act as partners to insurers, helping them manage liquidity and capital to preserve stability and resilience within the financial system,” he said. “It is the responsibility of large banks to address risk distribution with insurers as a way to enable certainty in the market.

“Banks can provide various forms of alternative capital to insurers to strengthen their solvency in a cost efficient way and build their resilience through diversification. For MUFG, a simple example of this is providing insurers with access to financial market products through our global financial platform – as well as using the financial resources of our domestic network, in particular in Asia.”

In addition, he said, MUFG works with insurance companies to help them access new asset classes and can offer warehouse financing to build a financial package and improve investment performance.

What is the relationship between banks and insurers like today?

Assessing the current state of the relationship between insurers and financial institutions, Viort noted that insurers are key clients for banks, and that building relationships is crucial to success between the two parties. Long-term relationships are at the heart of how MUFG does business, he said, and the banking group is always proactively looking for those which are mutually beneficial and solutions-focused.

“However,” he said, “I am still often struck that there remains some misalignment between banks and insurers. Despite our similarities – we have the same regulator, similar clients and often like-minded approaches to finance – perspectives sometimes differ. One possible explanation for this is a difference in risk appetite and Asset and Liability Management (ALM) constraints.

“For example, the increase of insurance allocation towards private assets has raised some questions on the perceived illiquidity risk attached to this asset class. Yet, banks have a long-standing experience in originating loans and have developed tools to analyse and manage the risk.”

Investing in private assets can increase investment returns for insurance, he said, but also direct resources towards the real economy. So, it stands to reason that both parties have to gain from a partnership as they seek to optimise their respective balance sheet, share expertise and deliver value for their stakeholders.

MUFG looks to take a “partnership” approach with insurers, which he highlighted is in line with the group’s broader approach to focusing on relationships as the key to successfully supporting clients.

Viort added that MUFG’s global emphasis on providing a wide range of services through its commercial, trust banking and securities services, stands it in “excellent stead” to support insurers in the EMEA region. The partnership approach means we understand each other, he said, and are in a better place to problem solve and adapt to requirements.

Viort on how banks can support insurers in an increasingly complex regulatory environment

“Both insurance and bank regulations ensure market participants can operate in a sound financial system which is essential for the economy,” Viort said. “One of the most pertinent areas of focus, particularly for the European Insurance and Occupational Pensions Authority, is private credit.

“Although private credit can offer superior returns, it requires sound analysis of the underlying asset before insurers embark on this investment option. This is something banks can provide. As asset allocations grow, banks can ensure investment decisions do not compromise financial stability. 

“In addition, when it comes to Solvency II, the aim is to reduce volatility and increase stability within the insurance market. Banks can help address these needs and support clients in navigating the new risks – diversification is key.”

Where do banks’ and insurers’ relationships go next?

Looking to what the year ahead has to hold for the market, Viort underscored how the insurance sector – both life and non-life – continues to display resilience and strength despite growing levels of risk in the world, particularly geopolitical risk which can impact financial markets.

The stability exhibited so far by the insurance sector is a very positive message for anyone looking for protection to help them build for the future, he said. Keeping insurance available and affordable is key to a well-functioning economy and society.

“Like insurers,” he said, “it is a bank’s job to understand, price and underwrite risk. My priority is refining our understanding of insurance risk and adapting our tools and methodologies to the new risk our insurance clients are facing and adapting accordingly to support them.”