Insights

Bond Market Riots

Government Debt in the 21st Century

One of the defining issues of our time is the debt sustainability of sovereign nations. For much of this century, governments around the developed world have lacked the political will or leadership to pursue fiscal austerity measures that would address large fiscal deficits and would put sovereign debt levels on a sustainable path. Politicians have made the determination that it is better to defer addressing the issue, get elected or re-elected, and leave the difficult decisions that may involve sacrifice for a later date or for someone else. The result of this procrastination approach has been ever rising levels of debt on both an absolute basis and relative to the size of the economy.

Trade Winds: March 2025

February Overview

The minutes from the most recent January FOMC meeting, in which rates were left on hold after having been reduced by 100 bps from their recent peak, confirmed that the Fed believes rates are “still restrictive,” just less so than before. Although still focusing on both objectives, the focus has shifted to bringing inflation further down as the labor market holds up. Indeed, the minutes shared that participants believe the labor market to be “roughly in balance” and “unlikely to be a source of inflationary pressure in the near future.”

Exploring the Relevance of Asset Liability Duration Matching in P&C Companies: Myth or Must?

Introduction

The collapse of Silicon Valley Bank in 2023 served as a wake-up call for the banking industry, highlighting the critical importance of asset liability management (ALM). Banks may need to liquidate assets to meet customers’ cash flow needs, sometimes realizing losses at inopportune times. This focus on ALM is not unique to banking; it is also a cornerstone of risk management in the insurance industry. Life insurance companies, in particular, employ ALM approaches to manage risk. Their investment portfolios need to be “liability-driven” due to the unique nature of their life insurance and annuity products.
When it comes to Property and Casualty (P&C) insurance companies, the benefits of incorporating asset liability duration matching in constructing asset portfolios are less clear. Unlike life insurance companies, P&C insurers deal with shorter-term and more unpredictable liabilities, such as claims from natural disasters or bodily injury, potentially leading them to perhaps think about ALM differently. This paper will first outline the various ALM approaches used by life insurance companies. We will then examine the enterprise, fixed income, and liability profiles of P&C companies based on the latest public statutory statements.

Trade Winds: February 2025

January Overview

With three consecutive rate reductions in the rearview mirror, the Fed held its benchmark rate steady at its most recent meeting. Believing that the economy is holding up, it sees no need to “be in a hurry to adjust” its current stance, biding its time instead to watch developments on the labor and inflation front. Indeed, minutes from the December FOMC meeting showed that participants believed that the risks of achieving their dual mandate were “roughly in balance,” albeit with more upside risks to inflation.

Bond Market Riots

Trade Winds: March 2025

Exploring the Relevance of Asset Liability Duration Matching in P&C Companies: Myth or Must?

Trade Winds: February 2025

Bond Market Riots

Government Debt in the 21st Century One of the defining issues of our time is the debt sustainability of sovereign nations. For much of this century, governments around the developed world have lacked the political will or leadership to pursue fiscal austerity measures that would address large fiscal deficits and would put sovereign debt levels on a sustainable path. Politicians have made the determination that it is better to defer addressing the issue, get elected or re-elected, and leave the difficult decisions that may involve sacrifice for a later date or for someone else. The result of this procrastination approach has been ever rising levels of debt on both an absolute basis and relative to the size of the economy. Read More

Trade Winds: March 2025

February Overview The minutes from the most recent January FOMC meeting, in which rates were left on hold after having been reduced by 100 bps from their recent peak, confirmed that the Fed believes rates are “still restrictive,” just less so than before. Although still focusing on both objectives, the focus has shifted to bringing inflation further down as the labor market holds up. Indeed, the minutes shared that participants believe the labor market to be “roughly in balance” and “unlikely to be a source of inflationary pressure in the near future.” Read More

Exploring the Relevance of Asset Liability Duration Matching in P&C Companies: Myth or Must?

Introduction The collapse of Silicon Valley Bank in 2023 served as a wake-up call for the banking industry, highlighting the critical importance of asset liability management (ALM). Banks may need to liquidate assets to meet customers’ cash flow needs, sometimes realizing losses at inopportune times. This focus on ALM is not unique to banking; it is also a cornerstone of risk management in the insurance industry. Life insurance companies, in particular, employ ALM approaches to manage risk. Their investment portfolios need to be “liability-driven” due to the unique nature of their life insurance and annuity products. When it comes to Property and Casualty (P&C) insurance companies, the benefits of incorporating asset liability duration matching in constructing asset portfolios are less clear. Unlike life insurance companies, P&C insurers deal with shorter-term and more unpredictable liabilities, such as claims from natural disasters or bodily injury, potentially leading them to perhaps think about ALM differently. This paper will first outline the various ALM approaches used by life insurance companies. We will then examine the enterprise, fixed income, and liability profiles of P&C companies based on the latest public statutory statements. Read More

Trade Winds: February 2025

January Overview With three consecutive rate reductions in the rearview mirror, the Fed held its benchmark rate steady at its most recent meeting. Believing that the economy is holding up, it sees no need to “be in a hurry to adjust” its current stance, biding its time instead to watch developments on the labor and inflation front. Indeed, minutes from the December FOMC meeting showed that participants believed that the risks of achieving their dual mandate were “roughly in balance,” albeit with more upside risks to inflation. Read More

2024 Fixed Income Yields and Returns...and Beyond

Healthy Appetite for Risk in 2024 Risk appetite across the U.S. capital markets was strong in 2024. The U.S. economy was supported by low unemployment, resilient consumer spending, and optimism over the promise of large language models and AI. The Federal Reserve moved to a monetary easing stance, reducing both its policy rate and balance sheet. The final kick came from the sweeping election result, setting off expectations for a growth tailwind from easing regulations and tax cuts. Fixed income markets underwent their own transition. Treasury yields fluctuated over the period but ended the year both steeper and higher as shown in the chart below. Credit spreads narrowed significantly, leaving most sectors on the rich side of historical valuations. Read More

Trade Winds: January 2025

December Overview The Fed cut its benchmark rate by 25 basis points as expected, bringing its benchmark range to 4.25%-4.50%. The decision was not unanimous, with the Cleveland Fed’s president voting to stay put at the previous level, and Powell commenting that it was a “closer call.” Commenting again that “labor market conditions have generally eased,” and despite being closer to their goal, inflation remains “somewhat elevated,” the committee will, as has been the case, remain “cautious,” and rely on incoming data to determine the degree and timing of future “adjustments” to its range. Read More

Fraternal Investment Portfolios: Walking a Different Path

Executive Summary In this issue, we examine the enterprise profile and investment characteristics of U.S. fraternal insurers, drawing comparisons with the broader U.S. life insurance industry. Despite being generally smaller in size, fraternal insurers have recorded comparable investment income (expressed as a percentage of invested assets) with the broader industry over the past four years. However, the fraternal composite’s fixed income portfolio book yield has been lower compared to the life industry, and the gap between the two groups has widened since interest rates began to rise in 2022. While the fraternal composite’s fixed income credit quality was in line with the rest of the life industry, duration and sector allocation differences may have been contributing drivers to the lag in book yields. Read More

Trade Winds: December 2024

November Overview The Fed’s 25 basis point November rate cut, which took the benchmark range to 4.50%-4.75%, did not come as a surprise. The market had begun to embrace a slower pace of rate reductions of late, with stronger data on balance presenting itself since the last Fed meeting. In the post-meeting press conference, in which Powell took time to assert the Fed’s independence post-election and stated the Fed would not “guess, speculate or assume” with respect to potential policies of the new administration, the Fed referred to easing labor market conditions and progress on the inflation front, and its intention to fine tune its policy to keep on target with its dual mandate. Read More

Enterprise Risk Capacity: Shifts in Risk Volume II

EXECUTIVE SUMMARY This issue of Perspectives explores the evolution of the risk and return profile of the U.S. property and casualty (P&C) industry over the past 20 years ending in 2023. It is an update to a previous Perspectives, “Enterprise Risk Capacity: Shifts in Risk” published in January 2022, that focused on data as of year-end 2020. Our motivation for this update was to evaluate if or how the industry’s risk profile evolved given the impact of the Covid-19 pandemic and subsequent dramatic changes in interest rates and inflation since 2020. Our financial performance and analysis consider statutory accounting and related filings. Read More

Trade Winds: November 2024

October Overview The Fed lowered its benchmark rate by 50 basis points in September, citing a more balanced labor market and declining rate of inflation as grounds to support its decision. Minutes from the meeting however showed that the decision to move by the above-mentioned amount was not entirely without hesitation, with some participants open to more gradual moves. Comments highlighted that the path may be more gradual going forward, particularly given a higher-than-expected payrolls number and inflation print in September, notwithstanding the noisy October print. Read More

NEAM Insights

Bond Market Riots

Government Debt in the 21st Century

Trade Winds: March 2025

February Overview

Exploring the Relevance of Asset Liability Duration Matching in P&C Companies: Myth or Must?

Introduction

Trade Winds: February 2025

January Overview

Topics

TOPICS

Publications

Authors

Bond Market Riots

Trade Winds: March 2025

Exploring the Relevance of Asset Liability Duration Matching in P&C Companies: Myth or Must?

Trade Winds: February 2025

2024 Fixed Income Yields and Returns...and Beyond

Trade Winds: January 2025

Fraternal Investment Portfolios: Walking a Different Path

Trade Winds: December 2024

Enterprise Risk Capacity: Shifts in Risk Volume II

Trade Winds: November 2024