Insights

Funds at Lloyd's: A New Horizon

Introduction

On 25 October 2021, Lloyd’s published the Revised Membership & Underwriting Conditions and Requirements (“the new M&URs”; Lloyd’s Market Bulletin Y5353), culminating an 11-month process since the initial consultation document was introduced. In response, capital providers (“members”) have started to make adjustments and we are seeing some early signs of where the market is moving under the new regulation.

Layering Enterprise Risk Preferences & Rewards

Executive Summary

Successful insurers make sound choices with investments and underwriting that translate into strong performance over time. In NEAM’s experience this is often rooted in a deep understanding and an alignment by these firms of their risk capacity and their risk preferences. They generally take a layered approach to strategy and risk management, to identify the balance of asset-driven risk and return and liability-driven risk and return that best suits their organization. NEAM advocates framing investment decisions based on a holistic understanding of an insurer’s risk tolerances that align with risk-adjusted return objectives over time.

The European Gas Crisis: From Russia with (No) Love

How have we got here?

Over the last 25 years, Europe has taken the global lead in energy transition in terms of lower fossil fuel extraction within its borders. This was achieved by a reduction in sourcing via natural gas fields in the Netherlands and coal in Eastern Europe while increasing the footprint of renewable energy sources such as wind and solar.

Returns, Yields & Opportunities: The Bonds are Back in Town

2022 in Review

The past year is one for the history books. Beyond the unprovoked invasion of Ukraine by Russia, a 40-year high in inflation, the collapse of high-flying crypto concerns, and the passing of an iconic queen, it was a historically disastrous year for asset returns.

Funds at Lloyd's: A New Horizon

Layering Enterprise Risk Preferences & Rewards

The European Gas Crisis: From Russia with (No) Love

Returns, Yields & Opportunities: The Bonds are Back in Town

Funds at Lloyd's: A New Horizon

Introduction On 25 October 2021, Lloyd’s published the Revised Membership & Underwriting Conditions and Requirements (“the new M&URs”; Lloyd’s Market Bulletin Y5353), culminating an 11-month process since the initial consultation document was introduced. In response, capital providers (“members”) have started to make adjustments and we are seeing some early signs of where the market is moving under the new regulation. Read More

Layering Enterprise Risk Preferences & Rewards

Executive Summary Successful insurers make sound choices with investments and underwriting that translate into strong performance over time. In NEAM’s experience this is often rooted in a deep understanding and an alignment by these firms of their risk capacity and their risk preferences. They generally take a layered approach to strategy and risk management, to identify the balance of asset-driven risk and return and liability-driven risk and return that best suits their organization. NEAM advocates framing investment decisions based on a holistic understanding of an insurer’s risk tolerances that align with risk-adjusted return objectives over time. Read More

The European Gas Crisis: From Russia with (No) Love

How have we got here? Over the last 25 years, Europe has taken the global lead in energy transition in terms of lower fossil fuel extraction within its borders. This was achieved by a reduction in sourcing via natural gas fields in the Netherlands and coal in Eastern Europe while increasing the footprint of renewable energy sources such as wind and solar. Read More

Returns, Yields & Opportunities: The Bonds are Back in Town

2022 in Review The past year is one for the history books. Beyond the unprovoked invasion of Ukraine by Russia, a 40-year high in inflation, the collapse of high-flying crypto concerns, and the passing of an iconic queen, it was a historically disastrous year for asset returns. Read More

Long-Duration Targeted Improvements (LDTI): Implications for Life Insurers’ Asset Allocation

LDTI comes live in 2023 Starting in 2023, U.S. public life insurers are expected to adopt Accounting Standard Update (ASU) 2018-12, the updated GAAP accounting rules for long-duration contracts. Among various changes required by this accounting update, standardizing the discount rates in long-duration contracts reserving could have implications (or unintended consequences) as life insurers attempt to manage, or mitigate, the reported earnings or book value volatility under this new accounting rule. This issue of Perspectives focuses on how liability discounting could influence life insurers’ enterprise optimization and investment strategy. Life Insurers are expected to navigate accounting, regulatory and rating agencies’ requirements and economic realities when evaluating and optimizing their enterprise values. Sometimes these are not aligned, or even conflicting, and insurers need to understand the trade-offs and choose measures that are most appropriate for their operational needs and stakeholder expectations. Read More

Vulnerabilities in Emerging Markets: A Simmering Cauldron or Bubbling Over?

Having rebounded from the depths of the pandemic crisis, the global economy faces a critical juncture as it battles to overcome stubborn inflation and revert to more normalized monetary conditions. The commodities complex has been thrown into flux with the war in Ukraine, imperiling regions in close proximity. The challenges are well known, even if the outcomes are uncertain. As we broaden our view to emerging economies, vulnerabilities are surfacing because of inflation and currency depreciation made worse by a strong U.S. dollar. Meanwhile, China faces a financial crisis brought on by a highly leveraged, multi-decade, real estate and infrastructure-fueled growth agenda. The potential for spillover to the broader global economy depends on the extent and breadth of the pain. Read More

2021 U.S. Life Industry Investment Highlights: Welcoming the Rising Rates!

Executive Summary The U.S. life insurance industry strengthened its liquidity as companies navigated the pandemic crisis and business uncertainties over the last two years. Broad sector allocations remained stable, with bonds and mortgage loans combined representing 83% of total invested assets. In 2021, the industry’s annual net investment income (%) increased marginally, largely driven by alternative assets, which tend to be predominately owned by large organizations. Read More

2021 P&C Industry Investment Highlights: Riding the Turning Tide?

Executive Summary The U.S. P&C insurance industry strengthened its liquidity as companies navigated the pandemic crisis and business uncertainties in 2020 and 2021. During this period, interest rates remained low as central banks supported the economy with ample liquidity. Read More

Lloyd's Project Rio: New Principles vs. Old Standards

Introduction Lloyd’s has recently initiated Project Rio (also known as “The Principles for Doing Business”), which will replace the Minimum Standards framework starting January 2023, moving from the former rules based regime to a principles based approach. Having submitted their first self assessments, Managing Agents are currently reviewing the results with Lloyd’s to determine whether any actions are required for the second half of 2022. Read More

“Nuking” Our Way to Lower Emissions

Nuclear Power in the U.S. Green sources of electric power such as wind and solar are appealing as they emit minimal pollution and carbon while producing power. The wind does not blow constantly, however, nor is the sun out around the clock and electric storage technology has not advanced to the point of capturing energy from any source sufficient to power an entire electrical grid. Other forms of energy that run almost continuously – such as nuclear power1 – are required to fill any gaps in production of electricity from the wind or the sun. What is the state of nuclear electricity generation in the U.S.? Unfortunately, after a strong pace of nuclear power plant construction in the 1970s – 1990s2, the country lost enthusiasm for building new facilities. Construction was expensive, approvals increasingly difficult to obtain and publicity surrounding the relatively few nuclear facility accidents discouraged development.3 The nuclear share of electricity generation in the U.S. rose from 2% in 1971 to around 20% in 1991, where it has remained. In comparison, wind’s share is 9% and solar’s is 3%.4 Read More

NEAM Insights

Funds at Lloyd's: A New Horizon

Introduction

Layering Enterprise Risk Preferences & Rewards

Executive Summary

The European Gas Crisis: From Russia with (No) Love

How have we got here?

Returns, Yields & Opportunities: The Bonds are Back in Town

2022 in Review

Topics

TOPICS

Publications

Authors

Funds at Lloyd's: A New Horizon

Layering Enterprise Risk Preferences & Rewards

The European Gas Crisis: From Russia with (No) Love

Returns, Yields & Opportunities: The Bonds are Back in Town

Long-Duration Targeted Improvements (LDTI): Implications for Life Insurers’ Asset Allocation

Vulnerabilities in Emerging Markets: A Simmering Cauldron or Bubbling Over?

2021 U.S. Life Industry Investment Highlights: Welcoming the Rising Rates!

2021 P&C Industry Investment Highlights: Riding the Turning Tide?

Lloyd's Project Rio: New Principles vs. Old Standards

“Nuking” Our Way to Lower Emissions