NEAM Insights

December Overview With inflation trending downward, and the labor market softening, market expectations for a reversal of Fed policy are gaining traction. The fight against inflation however is not over in the eyes of the Fed, whose median projections still see it above their target for the next few years. In their efforts to remain strong at the helm, they have attempted to craft a balanced message, acknowledging the turn in certain key metrics while remaining vigilant as their work is not done. Read More

China has been the largest contributor to global growth over the last 20 years (contributing ~40% to global growth) and is now the second largest national economy in the world behind the US. China is the largest manufacturing centre, largest consumer market for autos and electronics and largest housing market in the world. Read More

November Overview Labor and inflation data cooled over the month, raising the odds that the Fed may be through with its hiking cycle. However, despite market projections related thereto, the Fed is not ready to concede this position. While inflation is falling, and the labor market is slowly softening, there remains some distance between where the economy sits and the Fed’s desired targets. Until then, they see fit to remain vigilant. Read More

EXECUTIVE SUMMARY In this article, we delve into the enterprise profile of U.S. Medical Professional Liability (MPL) insurers and assess their investment performance relative to the broader U.S. property and casualty (P&C) industry. P&C insurers often shape their risk and return profiles around three key pillars: sector allocation, credit quality, and duration. However, our analysis shows that while MPL insurers and the broader industry share similarities in credit quality and duration, there are indications that the overall P&C industry outperforms MPL insurers in both overall net investment income and fixed income book yield. This pattern has persisted over the past decade, signaling a more conservative asset allocation approach adopted by MPL insurers. Within MPL writers, those taking on greater investment risk were generally able to achieve higher book yields, with larger companies more actively taking such risk. Read More

Executive Summary Enterprise based asset allocation (EBAA™) considers the joint implications of an insurer’s exposure to capital market and insurance market expectations to formulate investment strategies. This discussion builds on Part One of this two-part series where we previously discussed how EBAA™ analysis supported strategic choices regarding investment portfolio sector, duration, and credit quality of U.S. Property & Casualty (P&C) insurers. We discussed how these choices differed as monetary policy shifted from an accommodative focus in 2021 to a restrictive focus in 2023. In Part Two, we extend this discussion and explore how EBAA™ outcomes and preferences were considered given implications for realizing gains or losses and net income. Read More

October Overview The question of how long the Fed will remain in restrictive territory, if not venture further, before easing continues to be debated. With the passing of time, the window for the lag for tighter policy to kick in shortens, leaving the Fed to determine if policy actions taken to date are sufficient to achieve their mandate. Although data has shown that the labor market is coming more into balance, and price gains in many areas are decelerating, economic data continues to hold up, as evidenced by the recent Q3 GDP print. The Fed remains attentive at the helm, ready to act, if necessary, with the surge in Treasury yields offering them some cover at the same time. Read More

Executive Summary Enterprise based asset allocation (EBAA™) considers the joint implications of an insurer’s exposure to capital market and insurance market expectations to formulate investment strategies. This holistic approach to evaluate risk and return, and their interdependencies across the organization, enriches planning, capital allocation and general decision-making within the firm. Increases or decreases in insurance rates and coverage terms influence the underwriting process. Similarly, investment choices consider current and projected interest rates and credit spreads. For Property & Casualty (P&C) insurers, this is particularly impactful given their significant allocation1 to fixed income assets. Over a two-part series, we evaluate how different interest rate environments and shifting federal monetary policy can impact the EBAA™ findings for these insurers, including the associated implications of strategic repositioning of a portfolio given those findings. Read More

Solvency UK The Solvency II regulatory regime came into force across the European Union ("EU") on 1 January 2016. Following the UK’s exiting from the EU, the UK Government announced a review of the Solvency II framework and launched consultations in April 2022. It followed up with final proposals on 17 November 2022 and revealed draft legislation on 20 June 2023. The Prudential Regulation Authority (“PRA”) followed up with a consultation on technical details on 29 June 2023. Read More

September Overview Economic forecasts are calling for slower growth, higher unemployment and tamer inflation for 2024 as compared to 2023. This is to be expected given the monetary actions taken to date by the Fed and other major central banks. While numbers continue to trend in the right direction for the Fed, they remain cautious, intimating that they may keep the pressure on the brakes for longer than the market expected. Read More

A lot has been written about the potential future impact of Artificial Intelligence (AI) on both the U.S. as well as the global economy. It is early innings in this game but we are already seeing explosive growth in tools for AI applications in businesses around the world. What better way to examine this than to take a look at one example of the potential use of AI in our business. Read More