NEAM Insights

Executive Summary In 2024, the U.S. Property and Casualty (P&C) insurance industry’s net investment income reached a decade high of 3.63%, supported by elevated interest rates and increased equity dividend income. Over the past three years, one large insurer has notably influenced industry asset allocations by reducing its exposure to Schedule BA assets and equities, while increasing holdings in cash and short-term investments. Excluding this outlier, the industry’s overall asset mix has remained relatively stable. Meanwhile, the fixed income portfolio experienced a continued increase in book yield, along with improved credit quality and stable duration. The industry’s allocation to tax-exempt municipal bonds declined steadily, replaced by growing investments in corporate bonds and structured securities. Read More

June Overview The Fed stayed the course in June, keeping the benchmark policy rate range at 4.25 - 4.50% while advocating a cautious approach as recent trade policy measures have yet to show their impact on economic activity and inflation. Per its statement, the Fed believes that uncertainty has “diminished but remains elevated,” the labor market is in “solid” shape, while Read More

introduction On 1 November 2024, the UK implemented Securitisation Regulation 2024, which is reshaping how institutional investors — such as Lloyd’s syndicates — assess the structured securities markets. This departure from the EU regulations has modernised the regulatory approach, which aligns better with practices in the US market, and streamlines compliance for UK-based institutional investors. This publication discusses the investment opportunities for Lloyd’s syndicates and other London Market entities. Read More

May Overview With “heightened uncertainty” still dominating consumer and business sentiment, the Fed unanimously voted to maintain its benchmark rate range at 4.25-4.50%. Arguing that the economy is “still in a solid position,” with unemployment at 4.2%, and inflation lower but still above its target, the Fed remains tethered to the position that upholding the status quo is the best position at this time until hard data encourages them to act otherwise. Read More

April Overview Fed minutes highlighted that the US labor market remains stable and that inflation, although lower, remains above the desired level. New policies, particularly regarding trade, are presenting a challenge, however, and the Fed remains tethered to its data dependency position, waiting for hard data to confirm weakening survey responses on the consumer and business fronts. The Fed sees pressure on inflation favoring the upside, and concurrently growth pressuring to the downside. With “uncertainty higher,” the Fed prefers a more cautious approach, allowing them to remain restrictive enough in the face of potential one-time or more persistent inflation, as well as being ready to let the line out should labor market and/or growth pressures intensify. In a speech at the Economic Club of Chicago mid-month, Powell once again mentioned the “significantly higher than anticipated” tariffs and the corresponding impact on uncertainty, with potential implications for higher transient or persistent inflation, and slower growth on the horizon. With survey data for inflation expectations rising, and domestic and global growth estimates being revised downward, the Fed sits at a crossroads, advocating its intent to act once the data warrants so. Read More

March Overview Against the backdrop of “unusually elevated” uncertainty, the Fed held its benchmark rate steady at its most recent meeting, stating that the economy remains “strong overall” while they continue to work towards achieving their dual goals. Aware that offsetting upward pressures on inflation, and downward pressures on growth are increasing, the committee opted to hold steady. Read More

Asset-Centric Optimization An asset-centric optimization focuses solely on the investment portfolio, aiming to maximize the investment return based on the risk tolerance towards the assets, without directly considering liabilities. Read More

Government Debt in the 21st Century One of the defining issues of our time is the debt sustainability of sovereign nations. For much of this century, governments around the developed world have lacked the political will or leadership to pursue fiscal austerity measures that would address large fiscal deficits and would put sovereign debt levels on a sustainable path. Politicians have made the determination that it is better to defer addressing the issue, get elected or re-elected, and leave the difficult decisions that may involve sacrifice for a later date or for someone else. The result of this procrastination approach has been ever rising levels of debt on both an absolute basis and relative to the size of the economy. Read More

February Overview The minutes from the most recent January FOMC meeting, in which rates were left on hold after having been reduced by 100 bps from their recent peak, confirmed that the Fed believes rates are “still restrictive,” just less so than before. Although still focusing on both objectives, the focus has shifted to bringing inflation further down as the labor market holds up. Indeed, the minutes shared that participants believe the labor market to be “roughly in balance” and “unlikely to be a source of inflationary pressure in the near future.” Read More

Introduction The collapse of Silicon Valley Bank in 2023 served as a wake-up call for the banking industry, highlighting the critical importance of asset liability management (ALM). Banks may need to liquidate assets to meet customers’ cash flow needs, sometimes realizing losses at inopportune times. This focus on ALM is not unique to banking; it is also a cornerstone of risk management in the insurance industry. Life insurance companies, in particular, employ ALM approaches to manage risk. Their investment portfolios need to be “liability-driven” due to the unique nature of their life insurance and annuity products. When it comes to Property and Casualty (P&C) insurance companies, the benefits of incorporating asset liability duration matching in constructing asset portfolios are less clear. Unlike life insurance companies, P&C insurers deal with shorter-term and more unpredictable liabilities, such as claims from natural disasters or bodily injury, potentially leading them to perhaps think about ALM differently. This paper will first outline the various ALM approaches used by life insurance companies. We will then examine the enterprise, fixed income, and liability profiles of P&C companies based on the latest public statutory statements. Read More