NEAM Insights

February Overview With stabilizing employment data and “somewhat elevated” inflation, the Fed held rates steady at its last meeting. The minutes from the meeting highlighted a range of views amongst participants. The “vast majority” of Fed officials thought that downside risks to employment had moderated and wanted to see more progress on the inflation front before considering further rate cuts. Two Fed governors dissented from the decision and supported another rate cut. However, “several” not only backed the decision to leave the Fed funds rate unchanged but would have preferred a more balanced statement that alluded to the possibility of future rate hikes as well as cuts. With the risks to the dual mandate seemingly moving back into balance, incoming data appears set to drive future Fed decisions. A change in Fed chair, subject to Senate confirmation, injects some added uncertainty into potential Fed decisions, though. Read More

Executive Summary Correlation statistics are measures commonly used to evaluate the relationship between two variables. Asset classes often exhibit different performance tendencies over time. During market rallies or drawdowns some assets may outperform each other in different ways. These relationships can help reduce volatility across market cycles for diversified investment portfolios. This is also the case for the various types of insurance products sold by U.S. Property and Casualty insurance companies, which often have divergent claims development and loss cost characteristics over time. Moreover, assets and liabilities for P&C insurers usually do not behave in a uniform way, supporting diversification at the enterprise level as well. Read More

January Overview As the labor market stabilizes even while inflation remains above target, the Fed’s decision to keep the benchmark rate at 3.5%-3.75% reflects the Committee’s preference to wait for additional economic data before taking further action. Noting that the unemployment rate is steadying and payroll additions remain low, while upgrading the language related to the pace of growth to “solid” from “moderating,” the Fed still highlighted that inflation remains above their target. When viewed in the aggregate, the data led the Committee to decide to hold rates at their current levels until a clearer picture of the path of employment and inflation emerges. Read More

Strong Returns for Investment Grade Bonds in 2025 Investment-grade bonds staged a comeback in 2025, overcoming a year marked by significant economic policy uncertainty. The ICE BofA Aggregate Bond Index surged to a total return of 7.1%, a substantial improvement from 1.5% in 2024, with gains split equally between price appreciation and income. Interest rates dropped considerably across the curve: short- and intermediate-term maturities fell by about 70 basis points, the 10-year yield declined 40 basis points, while the 30-year yield remained stable. Read More

Executive Summary To understand how life insurers have navigated the recent period of elevated interest rates, we updated our analysis of the industry’s net investment spread (NIS)1 - the difference between the earned rate on invested assets and the estimated guaranteed rate credited to insurance contracts.2 Read More

December Overview At its most recent meeting in December, the Fed reduced its benchmark rate by 25 basis points, bringing the range to 3.50-3.75%. With the cut, the Fed has now acted at its last three meetings. With the committee having moved the rate 175 basis points since September 2024, the decision to lower the rate did not appear to be a straightforward one. A total of nine committee members voted in favor of the cut. Read More

November Overview With the Fed facing a combination of a slowing labor market, above target inflation and reduced available data from the government shutdown, it was no surprise to see that the October meeting’s minutes highlighted a growing disparity of views with respect to near-term policy. The minutes shared that “participants expressed strongly differing views about what policy decision would most likely be appropriate at the Committee’s December meeting.” Read More

In the Spring of 2025 Germany announced its intention to increase spending in a manner that was unimaginable at the start of this year, not to speak of a decade ago. The scale of Germany’s fiscal shift is enormous with potential implications for economic growth, inflation, and geopolitics. Exhibit 1 illustrates that expenditure in the coming years (% of GDP) is forecast to rival the amount spent on German reunification. Read More

As sustainability factors become embedded in insurers’ investment strategies, and non-financial disclosures become more standardised globally, the defence sector presents both challenge and opportunity within fixed income strategies. Long viewed as a standard exclusion, institutional investors are reassessing their stance on the sector and considering the potential positive impact that may be achieved through selective investment in the space, supported by regulatory guidance. Read More

Higher education in the U.S. is in a crisis of sorts. The sector is contending with a litany of pressures that are forcing institutions to evolve in an increasingly bifurcated marketplace. This directly impacts insurer portfolios, as higher education represents approximately 9% of U.S. insurance company municipal bond holdings. Despite the recent Federal policy headwinds, the most competitive institutions continue to demonstrate resilience while others face mounting financial and enrollment pressures. Read More