NEAM Insights

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

2021 IN REVIEW 2021 proved to be a year of mixed fortunes in financial markets. U.S. stocks had another banner year with the S&P 500 returning 28.7%. This completes the hat trick which saw equity returns in double digit territory for three years in a row. It wasn’t merely double digits though. The annualized return for the S&P 500 was over 26% for the three years ended December 31, 2021. Sustained returns at this level are extremely unusual (see Chart 1). Read More

Executive Summary This issue of Perspectives will explore the risk and return profile of the U.S. property and casualty (P&C) industry and assess ways this has evolved over time. One mandate of insurance company leadership is to utilize the firm’s risk capacity effectively and ensure that it is aligned with the risk preferences of stakeholders. Part of this effectiveness depends on understanding drivers of a specific company’s return and risk, and how this compares to competitors and the broader industry. Read More

As news of the Omicron variant spread the day after Thanksgiving 2021, it was hard not to have flashbacks to the 1993 Bill Murray movie Groundhog Day. “This can’t be happening again,” was a popular phrase heard throughout the world. As disappointing as it is to see another highly contagious Covid variant emerge, it does set the stage for what could become the norm in 2022. The (hopeful) transition from pandemic to endemic in 2022 may coincide with a series of rolling Covid variant outbreaks. With that in mind, how does one position investment portfolios for insurance companies when the next round of volatility and uncertainty could be right around the corner? Are there portfolio strategies in a Covid world that historically would not be inflected in insurance company portfolios? First, let’s take a quick look at our economic outlook for 2022. Read More

Green, social, and sustainable bonds – collectively known as ESG labeled bonds – specify that an amount equal to the bond proceeds will be invested in environmentally responsible initiatives, socially conscious projects, or, for sustainable bonds, a combination of both. For the investor inclined towards sustainability, the growth in ESG labeled debt outstanding, as discussed in a previous Quick Takes ("ESG Labeled Bonds: A Very Fashionable 'Label,'" 2021), may seem like a great opportunity. However, investors must look beyond the ESG label since that label is not a guarantee that a bond will meet one’s ESG expectations. Read More

Rapid Growth ESG has taken the investment world by storm. One of the elements of this new emphasis on “sustainable” investing has been the rapid development and expansion of ESG labeled bonds. Though bonds associated with environmental themes have been around for almost two decades, issuance in ESG labeled bonds has skyrocketed in the last few years, especially for the newer label types. Read More

The UN’s recent landmark climate report explains that “Climate change is already affecting every inhabited region across the globe with human influence contributing to many observed changes in weather and climate extremes.”1 McKinsey Global Institute goes on to note “As average temperatures rise, climate science finds that acute hazards such as heat waves and floods grow in frequency and severity, and chronic hazards, such as drought and rising sea levels, intensify.”2 Read More