NEAM Insights

The last year has been a challenge for energy markets with a global oversupply in crude oil exacerbated by a pandemic-induced drop in overall energy demand. Additionally, from a longer-term perspective, industry trends away from using traditional sources of fuel have been accelerating. Over the past few years, investment managers have become increasingly focused on environmental, social and governance factors (ESG) when looking to put money to work. Further, concerns over climate, sustainability of resources as well as pollution have encouraged energy-producing countries and companies to actively seek to change how power is accessed, supplied, distributed and ultimately used with the idea of limiting or eliminating negative effects on the environment. Below we discuss some developments that could change the business of energy over the coming decades. Read More

The Fed and Inflation In 1979, annual inflation rates were north of 10% and rising when Paul Volcker, then Chairman of the Federal Reserve Board, took action to attack the problem. On the heels of an unscheduled Federal Open Market Committee meeting, Volcker announced a change in Federal Reserve policy designed to rein in inflation. By early 1980, the Fed Funds rate peaked at a record high of 20% and inflation crested at just under 15%. This series of Fed actions confirmed the Fed’s independence, firmly established its inflation fighting credentials and ushered in an era of low and stable inflation rates. Read More

Executive Summary To understand how life insurers have fared through this prolonged low yield environment, we have published a series of studies1 that review the life industry’s net investment spreads. Principally, these spreads are the difference between “earned” rates from assets versus “paid/credited” rates to insurance contracts.2 Read More

Slightly over a year ago in early 2020, the United States was in a good place economically. The economy was coming off a year in which real GDP grew 2.3% and the unemployment rate was at a historical low of 3.5%. The economy was poised for another strong year and President Trump was confident that he had Made America Great Again. And then the world came to a halt. The Covid virus hit the shores of America and the U.S. economy went into lockdown. As had been the playbook in the Great Financial Crisis of 2008, the Federal Reserve stepped in, dropped rates to zero and unleashed a series of monetary support programs the magnitude of which we have never seen before. Read More

Election Surprises After the contentious 2020 presidential election and its aftermath, the loss of both Republican Senate seats in Georgia proved a surprise. Just a few weeks earlier, the assumption was that Congress would be divided and that any sweeping legislative changes were unlikely. That presumption changed with the Republican loss of those two seats. President Biden has indicated that he would like to re-establish a bi-partisan legislative process. While we hope he is successful, bipartisan cooperation would be a tall order at this moment. Read More

In short, 2020 proved to be an intense and surreal year. The world faced a global pandemic which infected nearly 82 million people and led to 1.8 million associated fatalities at last count.1 Global economic activity fell by nearly 20% by April, and the U.S. economy experienced its fastest and deepest recession in post war history. The level of economic disruption induced by the pandemic necessitated a massive and swift policy response, the magnitude of which more than fully offset the sacrificed income and goosed the U.S. savings rate to a record 34%. This liquidity stabilized risk asset prices and enabled the 2020 stock market to rally off the lows to be the greatest of all time, further fueled by the reopening of the economy and successful development of compellingly effective vaccines.2 Read More

2020 in Review 2020 proved to be “one of those years.” A global pandemic wreaked havoc around the world and left many lives and livelihoods in its wake. Historic fiscal and monetary policy measures were taken to keep a very dire situation from completely upending the global economy. In the aggregate, the policies were effective and the economic damage was reasonably well contained, despite the massive disruption and heartache caused by COVID-19. Read More

As we enter 2021, there appears to be light at the end of the tunnel. Multiple vaccines have been shown to be highly effective at preventing infection from the COVID-19 virus and various governmental authorities around the world have approved their use and commenced inoculation programs. While the spread of the virus persists at an alarming pace and the death toll from the pandemic continues to rise, there is cause for optimism. Stock markets have rallied strongly on the heels of the vaccine news as investors have begun to anticipate a post pandemic world. At this point, it appears appropriate to consider the “end” and look toward a future with a marginalized COVID-19 virus or at least with the virus in a manageable state. Read More

As we enter our ninth month of the COVID-19 pandemic, the negative effects of the coronavirus on commercial real estate are becoming evident. One of the most visible indicators has been the elevated CMBS delinquency rate which reached a record level in June 2020. Though that number has started to decline over the last several months, the rate of loans in special servicing remains at recent peak levels. Performance, however, has varied significantly across property types, and the timing of COVID-19 presents a unique challenge to the market as it coincides with several structural shifts taking place. While the pandemic has the potential to accelerate these trends, there is a high level of uncertainty as to what extent commercial real estate will be affected longer-term. Read More

Airport bonds comprise ~4% of outstanding muni debt1 and have long been a source of incremental yield in insurance company portfolios. While economically sensitive, the sector has proven resilient through prior disruptions including 9/11 and the 2008 financial crisis. Further, a rated municipal airport credit has never defaulted. The Coronavirus pandemic, however, has proven to be as great a challenge to the modern U.S. commercial aviation industry and its infrastructure as any disruption on record. By way of background, municipal airport bonds are usually secured by general operating revenues including airline fees, concessions and rents, parking fees, passenger facilities charges, etc. Airports are typically self-supporting entities that do not rely on general fund revenues of their host cities/metropolitan areas. Read More