NEAM Insights

While the earned rates for life insurers are relatively straight forward, the paid or credited rates may warrant further discussion. Life insurers are subject to minimum interest rate guarantees, both explicitly and implicitly, for long-term insurance contracts. Read More

A Global Problem It’s no secret that developed nations around the world are collectively wrestling with the unenviable dilemma of aging populations, rising entitlement costs, and paltry economic growth. Amidst this, government pensions have come under increased focus as central banks around the world suppress interest rates. Read More

Throughout the majority of 3Q 2016, the U.S. equity markets were characterized by a surreal calmness as they generally traded within a very narrow price and volatility band, akin to a placid lake as the summer sun rises over the horizon. Summertime is characteristically quieter in the financial markets, but this level of tranquility was notable. Read More

In revisiting our previous analysis of declining P&C industry book yields, we have been interested to observe how closely actual figures have followed forecast. In addition, the future trajectory is more concerning than last year’s trajectory, as a flattening of the yield curve in 2016 has created a greater likelihood of continued degradation for years to come. Insurance companies continue to struggle with a low interest rate environment, forcing them to look for creative ways to stem the decline in book yields. Read More

Our recent Perspectives focused on 2015 property/casualty insurers’ investment highlights and led us to reach the following conclusion: It is to an insurer’s advantage to adopt an enterprise capital management approach to optimizing asset allocation which encompasses a more complete integration with enterprise risk appetite and tolerances, a comprehensive vetting of investment guidelines and consideration of capital structure and management. Read More

Background On September 16, 2008 the investment industry saw the first retail money market fund “break the buck.” The Reserve Primary Fund held $785 million of Lehman Brothers Commercial Paper that was rendered worthless when Lehman filed for bankruptcy. Even though the holdings represented less than 1.5% of the fund, investors worried that other commercial paper issuers held within the fund might suffer the same fate. Read More

In this issue of Perspectives, we review statutory operating and investment results for the U.S. life insurance industry over the last decade. Portfolio details focus on fixed income sector trends and market statistics (durations, yields and NRSRO ratings), which are maintained by NEAM in a proprietary database and are not publicly available. Read More

At the beginning of this year, we wrote a piece called “The Song Remains the Same.” The basic message of the article was that we should expect the current environment of slow economic growth and low interest rates to persist. Given that developed world economies continue to struggle with structural issues such as large debt burdens and aging populations, we believed, at the time, that global monetary authorities would continue with their extraordinarily accommodative programs and that interest rates would likely stay at (or near) their historically low levels. In short, we did not see a lot to get excited about. Our return expectations for the year were modest and our general view of the risk/reward tradeoff in capital markets was uninspiring. Read More

Earnings for U.S. corporations have been sluggish for the past six quarters. This has been largely influenced by the collapse in crude oil prices and the strong U.S. dollar which has negatively impacted foreign exchange translation for companies generating business overseas. Additionally, earnings reflect the low nominal growth backdrop and the aging business and credit cycle. Read More

The S&P 500 was pacing for a relatively uneventful second quarter until the final weeks of Q2 when history was made. Unexpectedly, the people of the United Kingdom voted to leave the European Union and uncertainty rippled through the market. Initially, the British pound collapsed and European equities dropped sharply, led by Italy and Spain. Read More