NEAM Insights

How have we got here? Over the last 25 years, Europe has taken the global lead in energy transition in terms of lower fossil fuel extraction within its borders. This was achieved by a reduction in sourcing via natural gas fields in the Netherlands and coal in Eastern Europe while increasing the footprint of renewable energy sources such as wind and solar. Read More

2022 in Review The past year is one for the history books. Beyond the unprovoked invasion of Ukraine by Russia, a 40-year high in inflation, the collapse of high-flying crypto concerns, and the passing of an iconic queen, it was a historically disastrous year for asset returns. Read More

LDTI comes live in 2023 Starting in 2023, U.S. public life insurers are expected to adopt Accounting Standard Update (ASU) 2018-12, the updated GAAP accounting rules for long-duration contracts. Among various changes required by this accounting update, standardizing the discount rates in long-duration contracts reserving could have implications (or unintended consequences) as life insurers attempt to manage, or mitigate, the reported earnings or book value volatility under this new accounting rule. This issue of Perspectives focuses on how liability discounting could influence life insurers’ enterprise optimization and investment strategy. Life Insurers are expected to navigate accounting, regulatory and rating agencies’ requirements and economic realities when evaluating and optimizing their enterprise values. Sometimes these are not aligned, or even conflicting, and insurers need to understand the trade-offs and choose measures that are most appropriate for their operational needs and stakeholder expectations. Read More

Having rebounded from the depths of the pandemic crisis, the global economy faces a critical juncture as it battles to overcome stubborn inflation and revert to more normalized monetary conditions. The commodities complex has been thrown into flux with the war in Ukraine, imperiling regions in close proximity. The challenges are well known, even if the outcomes are uncertain. As we broaden our view to emerging economies, vulnerabilities are surfacing because of inflation and currency depreciation made worse by a strong U.S. dollar. Meanwhile, China faces a financial crisis brought on by a highly leveraged, multi-decade, real estate and infrastructure-fueled growth agenda. The potential for spillover to the broader global economy depends on the extent and breadth of the pain. Read More

Executive Summary The U.S. life insurance industry strengthened its liquidity as companies navigated the pandemic crisis and business uncertainties over the last two years. Broad sector allocations remained stable, with bonds and mortgage loans combined representing 83% of total invested assets. In 2021, the industry’s annual net investment income (%) increased marginally, largely driven by alternative assets, which tend to be predominately owned by large organizations. Read More

Executive Summary The U.S. P&C insurance industry strengthened its liquidity as companies navigated the pandemic crisis and business uncertainties in 2020 and 2021. During this period, interest rates remained low as central banks supported the economy with ample liquidity. Read More

Introduction Lloyd’s has recently initiated Project Rio (also known as “The Principles for Doing Business”), which will replace the Minimum Standards framework starting January 2023, moving from the former rules based regime to a principles based approach. Having submitted their first self assessments, Managing Agents are currently reviewing the results with Lloyd’s to determine whether any actions are required for the second half of 2022. Read More

Nuclear Power in the U.S. Green sources of electric power such as wind and solar are appealing as they emit minimal pollution and carbon while producing power. The wind does not blow constantly, however, nor is the sun out around the clock and electric storage technology has not advanced to the point of capturing energy from any source sufficient to power an entire electrical grid. Other forms of energy that run almost continuously – such as nuclear power1 – are required to fill any gaps in production of electricity from the wind or the sun. What is the state of nuclear electricity generation in the U.S.? Unfortunately, after a strong pace of nuclear power plant construction in the 1970s – 1990s2, the country lost enthusiasm for building new facilities. Construction was expensive, approvals increasingly difficult to obtain and publicity surrounding the relatively few nuclear facility accidents discouraged development.3 The nuclear share of electricity generation in the U.S. rose from 2% in 1971 to around 20% in 1991, where it has remained. In comparison, wind’s share is 9% and solar’s is 3%.4 Read More

Secular Decline in Inflation Driven by Globalization and Related Factors How many tentacles does an octopus have? (Hint: it’s a trick question.) Answer: none. Rather, an octopus has six “arms” and two “legs”, which might be an apt metaphor to begin to frame the discussion of the highly complex ecosystem of global trade (which surely has more than eight limbs). Read More

EXECUTIVE SUMMARY This issue of Perspectives explores S&P’s proposed overhaul of its risk-based capital (RBC) model and methodology for insurance companies, and some of the implications for insurer investment strategy. The last update of this significance by S&P to its capital model was over 10 years ago, so the update is timely. The proposed changes are designed to enhance global consistency, improve risk differentiation, reduce unnecessary complexity and increase transparency. At first glance, the proposed changes seem largely appropriate, but there are some interesting findings worth mentioning. Read More