Sub-$250m carriers are the center of gravity in outsourcing

The NAIC's latest review of investment management outsourcing by U.S. insurers reads, at first glance, like a modest increment: 54% of insurers used an unaffiliated outside manager at year-end 2025, up from almost 53% a year earlier and from near 50% in 2021, while the number of outsourcing insurers rose to 2,460 from 2,415.

Two numbers beneath the topline change that reading: two-thirds of the insurers that outsource have less than $250 million in assets under management, and about 75% hand more than half of their assets to a single unaffiliated manager. Add the outsourced-AUM figure the NAIC cites from Clearwater Analytics—$5.5 trillion in 2025 among its U.S. insurance respondents, more than triple the $1.7 trillion reported a decade earlier—and the textbook story of slow penetration growth collapses into a concentration event.

Stewart Foley, founder and senior advisor of Insurance AUM Journal, supplies the interpretation that matters: outside managers are increasingly functioning as an extension of the insurance company itself, rather than as a supplier for one portfolio sleeve. A general account differs from an endowment pool because the assets exist to support liabilities and sit inside a regulatory, accounting and capital framework that touches nearly every investment decision. Liquidity, downgrades and realized gains all matter differently when the portfolio is tied to promises the insurer has already made.

Foley argues that an insurer does not hire an outside manager the way an endowment hires someone to run part of a diversified pool. The largest carriers may have enough scale to build much of that expertise internally, but a $150 million property-casualty carrier, a regional health plan or a smaller life company faces entirely different economics. Those companies still need asset-liability management, regulatory expertise, portfolio construction, credit underwriting, reporting, accounting support and access to investment opportunities; building every one of those capabilities in-house rarely makes sense at that size, and the NAIC count suggests most small carriers have reached the same conclusion.

The sub-$250 million figure is the central fact in the report: the insurance asset management industry spends an enormous amount of time chasing very large mandates, for understandable reasons, but the broad universe of actual decisions sits at the small end of the market. For that segment, a manager is not being hired to add a few basis points of alpha on one sleeve; it is being hired to make the balance sheet work. The capabilities that win the mandate are regulatory reporting, accounting support and credit underwriting as much as portfolio construction.

The concentration figure sits awkwardly alongside the conventional risk-management toolkit. Three-quarters of outsourcing insurers putting more than half their assets with a single manager suggests something closer to a delegation of the internal finance operation than a portfolio mandate. For a carrier below $250 million, switching costs become severe: replacing manager A with manager B requires the very internal capacity the carrier did not have in the first place. The absence of scale that makes outsourcing necessary is the same absence that makes manager replacement hard; that tension is the meaning of the data.

Foley's larger observation doubles as a warning to asset managers: if the manager has become an extension of the insurance company, then the manager must staff for the insurer's responsibilities, not just for a benchmark. ALM skills, regulatory expertise, accounting capabilities and the ability to explain a downgrade in the context of liabilities are the product. Reading the NAIC report as merely another year of third-party AUM growth would miss the point.

There is also a pricing implication hiding in the small-carrier share. A mandate of $150 million cannot be served by the same team structure, reporting cadence or regulatory overhead that serves a $5 billion general account, and the buyers at the small end are pricing a different bundle. Managers that continue to treat these accounts as scaled-down versions of large mandates will find that the back-office cost structure does not fit. The managers that treat a small insurer as a client who has outsourced the entire finance function will be building the more durable franchise.

The next NAIC count will matter less for its aggregate penetration rate than for the number of new sub-$250 million carriers on the list and whether their managers staff up for asset-liability management rather than portfolio sleeve selection.