• Look for diversity in asset management companies. Firms that manage a number of asset classes—such as stocks, bonds, and hedge funds—are more stable during market gyrations. One-hit wonders are much more volatile and are subject to wild swings.
• Keep an eye on asset growth. Make sure an asset manager is successful in
consistently bringing in inflows greater than outflows.
• Look for money managers with attractive niche markets, such as tax-
managed funds or international investing.
• Sticky assets add stability. Look for firms with a high percentage of stable
assets, such as institutional money managers or fund firms who specialize
in retirement savings.
• Bigger is often better. Firms with more assets, longer track records, and
multiple asset classes have much more to offer finicky customers.
• Be wary of any insurance firm that grows faster than the industry average
(unless the growth can be explained by acquisitions).
• One of the best ways to protect against investment risk in the life insurance
world is to consider companies with diversified revenue bases. Some prod
ucts, such as variable annuities, have exhibited a good degree of cyclicality.
• Look for life insurers with high credit ratings (AA) and a consistent abil
ity to realize ROEs above their cost of capital.
• Seek out property/casualty insurers who consistently achieve ROEs above
15 percent. This is a good indication of underwriting discipline and cost
control.
• Avoid insurers who take repeated reserving charges. This often indicates
pricing below cost or deteriorating cost inflation.
• Look for management teams committed to building shareholder value.
These teams often have significant personal wealth invested in the busi
nesses they run.
