NEAM Insights

Background The capital markets have exhibited flashing yellow lights for quite some time. From the incredibly sanguine view on volatility seen through 2017 and most of 2018, to the “can’t lose” attitude of investing in today’s high flying momentum stocks, to the advent of “crypto” and the (much) looser investor protections contained in bond and loan indentures, investor behavior and attitudes have been characteristic of those exhibited late in an economic cycle. Read More

In revisiting our analysis of declining P&C industry book yields, this year we took stock of how closely the reported figures have followed our previous forecast. As we expected, 2017 was another year of book yield degradation for the P&C industry, despite the fact that the entire yield curve has risen over 50 bps since July of 2016 (much more in shorter maturities), providing a significantly better reinvestment rate. 2017 represents the 9th consecutive year of degradation but for 2018 we may finally see stabilization and perhaps even an increase in industry book yields. Read More

Insurance executives know it’s axiomatic that underwriting results are volatile, reflecting fortuitous events, competitive practices and even misjudgments. Although premium income has recovered from immediate post-financial crisis contractions, underwriting margins once again have turned negative. When combined with low investment income, the industry has netted low single digit returns on equity – potentially less than the cost of capital for some insurance companies. While there are underwriting market leaders, even those that outperform face challenges to their investment operations similar to other industry participants. Read More

FINANCIAL HIGHLIGHTS Recent History and Trends Recent premium growth for the property and casualty insurance industry has been hovering at 4% as the underwriting margin continues to show volatility and returned to unprofitable levels. Read More

In October 2017, AM Best released their new Best’s Capital Adequacy Ratio (BCAR) methodology that assesses the capital adequacy of the property/casualty and life/health insurers in North America. Read More

For the third quarter of 2018, the S&P 500 returned 7.2%, the best quarterly return since 2013. Fueled by the strongest U.S. macro backdrop since the Financial Crisis, the S&P 500 generated equally potent returns for July and August before momentum faded in September around renewed trade angst. Despite more subdued gains as the quarter progressed, the market achieved yet another all-time high by late September as well as earning the distinction of the longest bull market on record. In the wake of the tenth anniversary of the collapse of Lehman, volatility remained in the lowest historic quartile.1 Trade tension continued to impact the currency markets and the U.S. dollar strengthened, pressuring both the material and energy sectors. Outside of trade, healthcare impacted market performance positively as the sector contributed double digit gains within the S&P 500 for the quarter. Read More

Introduction Since 2010, stability in the euro area has been tested on several occasions as many peripheral nations have undergone periods of economic and market stress. In response, European authorities have put forward proposals to make the monetary union more resilient. Completing the Banking Union, developing the European fiscal framework and providing euro area stabilisation tools to deal with large asymmetric shocks are among the topics that have been discussed. A key issue that has been repeatedly mentioned has also been the lack of a euro area-wide ”safe asset.” Read More

In this issue of Quick Takes, we will look at how certain risk factors in the muni market have evolved over the past decade. The states were in reasonably good credit condition in early 2008, the municipal market was operating smoothly and the financial crisis was beginning to unfold. Now, once again we find ourselves late in a credit cycle, so it’s natural to ask how does today’s municipal landscape broadly compare to what it was pre-crisis? Read More

The UK’s Brexit referendum was held two years ago on June 23, 2016. The UK gave formal notice of its decision to leave the European Union (EU) on March 29, 2017 and following the two year notice period required by EU law, the UK will legally leave the EU on March 29, 2019. Since the referendum result was close (52% of voters in favour of leaving) and the precise terms of exit were not a feature of the referendum, it’s been a tortuous journey to date and there’s likely to be more uncertainty before Brexit takes its final shape. Read More

A historic change will soon be coming to the mortgage-backed securities market. On June 3, 2019, the Federal Housing Finance Authority (FHFA) plans to launch the “uniform mortgage-backed security” (UMBS), a single mortgage-backed security that will be issued by either Fannie Mae or Freddie Mac. The UMBS and the platform supporting it are intended to introduce greater efficiency, improve market liquidity and potentially pave the way for more substantive reforms to U.S. housing finance. Read More