NEAM Insights

Fear or Greed? For much of 2012 through 2014, investors clearly chose greed as the S&P 500 Index rallied 16%, 32%, and 14% interspersed with the occasional mini-bout of caution. In September of last year, fear made an appearance, pounding on the door like the wolf in the proverbial fable and threatened to blow the house down. The combination of a spiking dollar, a slowing global economy, especially in emerging markets, and sharply declining crude oil prices sent the markets into turmoil. Since then, U.S. equity markets have oscillated between fear and greed, with heavy selling followed by buying strength, only to retrace downward with more selling. Clearly, the equity markets are experiencing crosscurrents and investors are vacillating with the tidal change of news headlines. Read More

Interest rates are low, equity markets are volatile and both are likely to remain so. Purveyors offering favorable, even “superior,” returns from alternative investments are energized. However, their motivations may not align with the best interests of their customers. Read More

Stress testing is a critical component of insurers’ enterprise risk management framework, yet not without its challenges. Our interest in the topic is driven by the clients we serve. As we assist clients in managing their enterprise and investment risk we are motivated to “get it right,” i.e., to assure a better understanding of the inherent risk within their insurance and investment portfolios. Read More

Stress testing is a critical component of insurers’ enterprise risk management framework. Boards, managements, regulatory and rating agencies and other stakeholders have an expectation that organizations assess the “consequence of being wrong” in the formulation of their business strategies and the execution of operating plans.1 There is the need to distinguish between the willingness to take risk and the capacity to absorb risk. The former is aspirational and can be reviewed in various constituent communications. The later becomes a fact proven only by the resiliency of the enterprise to recover from adverse events. Read More

The treatment of securitisations in Europe has gained some publicity recently with updates coming from the EC and EIOPA on Solvency II. In this Quick Takes we review the changes and provide additional comments on our interpretation of the regulatory requirements of holding such assets on the balance sheet of an insurance firm. Read More

The Detroit municipal bankruptcy in 2013 was the largest in U.S. history, by far. Eighteen months and $170 million in legal fees later, the beleaguered city exited bankruptcy. Monetary losses were spread across creditors, including deep cuts for certain classes of bondholders. This landmark case offers a very public and large glimpse into the murky world of municipal bankruptcy. Read More

It is important for insurance companies to have well-grounded expectations for the coming year with respect to fixed income investment returns. In an effort to provide guidance to clients and others, we have used GR–NEAM’s proprietary return projection methodology to establish a realistic target for fixed income returns and a reasonable range of outcomes for fixed income portfolios of the U.S. P&C insurance industry for 2015. Read More

In September, the Federal Housing Finance Agency (FHFA) released a Notice of Proposed Rulemaking (NPR) proposing to revise its regulations governing Federal Home Loan Bank (FHLB) membership requirements while seeking to address what they view as issues related to the FHLBs’ housing finance mission. This Quick Takes outlines a brief history of the FHLB, our understanding of the NPR and how, if passed, the proposed changes may affect insurance companies going forward. Read More

The fall in Euro Area (EA) inflation during the last twelve months has been a surprise to policy makers and market participants alike. In addition to current headline inflation reading of slightly above zero—longer term inflation expectations have also declined. A lackluster growth/deflationary outcome would represent a significant medium term challenge to some EA sovereigns that still require de-leveraging and structural reform. Read More

Change is on the way for UK GAAP reporters with FRS 102 “The Financial Reporting Standard Applicable in the UK and Republic of Ireland” being adopted by the UK Financial Reporting Council (FRC) with effect from 2015. Read More