Borrowing from Patches O’Houlihan in the 2004 comedy, Dodgeball, an adage comes to mind when considering corporate defaults: “if you can dodge a wrench, you can dodge a default.” This message applies in the wake of the recent high profile bank failures at institutions such as Silicon Valley Bank, Credit Suisse and First Republic, and are a vivid reminder about the importance of maintaining a disciplined approach to credit to dodge the potential pitfalls of the market. While insurance company investors may be seduced by attractive yields in riskier assets when spreads are tight, credit is widely available, and economic growth seems like a formality, the market turmoil in 2023 is a stark reminder that investment grade bonds do behave badly at times. Insurance company investors need to stay true to their principles to avoid material underperformance when times of stress and dislocation occur. After all, while the five D's of dodgeball (dodge, duck, dip, dive and dodge) are effective for the game, dodging distress in the market is best achieved by consistently maintaining discipline – especially during benign market conditions.
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